U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(D) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

                      For fiscal year ended April 30, 1999

                         Commission file number 0-27382

                            SC&T INTERNATIONAL, INC.
                 (Name of Small Business Issuer in Its Charter)

        ARIZONA                                         86-0737579
(State of incorporation)                    (I.R.S. Employer Identification No.)

                             7625 EAST REDFIELD ROAD
                                    SUITE 200
                            SCOTTSDALE, ARIZONA 85260
                                 (480) 368-9490
    (Address, including zip code, and telephone number, including area code,
                         of issuer's executive offices)

    Securities registered pursuant to Section 12(b) of the Exchange Act: None

      Securities registered pursuant to Section 12(g) of the Exchange Act:

                     Common Stock, par value $0.01 per share

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Check if disclosure of delinquent  filers pursuant to item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained,  to the best
of  registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated  by reference  in Part III of this Form 10-KSB or any  amendment to
this Form 10-KSB [X].

Issuer's revenues for its most recent fiscal year: $3,405,313

Aggregate  market value of the voting stock held by  non-affiliates  computed by
reference to the price at which the stock was sold, or the average bid and asked
prices of such  stock,  as of a specified  date  within the past 60 days:  As of
August 5, 1999 - $1,064,212

Number of shares  outstanding of each of the issuer's  classes of common equity,
as of the latest practicable date: As of August 5, 1999 - 3,351,064

Documents incorporated by reference: Not Applicable.
<PAGE>
                            SC&T INTERNATIONAL, INC.

                          ANNUAL REPORT ON FORM 10-KSB

                       FISCAL PERIOD ENDED APRIL 30 ,1999

                                TABLE OF CONTENTS

                                                                            Page
PART I

ITEM 1.   STATEMENT TO SHAREHOLDERS  - BUSINESS                               3
ITEM 2.   FACILITIES                                                         13
ITEM 3.   LEGAL PROCEEDINGS                                                  13
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                15

PART II

ITEM 5.   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
          STOCKHOLDER MATTERS                                                15
ITEM 6.   SELECTED FINANCIAL DATA; MANAGEMENT'S DISCUSSION AND
          ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
          OPERATIONS                                                         16
ITEM 7.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                        24
ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE                                19

PART III

ITEM 9.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT;
          COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES
          EXCHANGE ACT OF 1934                                               19
ITEM 10.  EXECUTIVE COMPENSATION                                             20
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT                                                     21
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                     21

PART IV

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K                                   22

SIGNATURES                                                                   23

                                        2
<PAGE>
                                     PART I

ITEM 1. STATEMENT TO SHAREHOLDERS

This past year has not met the  expectations of the Company.  Since the untimely
resignation  in September  1997 by Toback & Company,  the  Company's  accounting
firm, and its  subsequent  de-listing by the NASDAQ in October 1997, the Company
has struggled to achieve its planned  future  growth.  Due to the de-listing the
Company found it impossible to attract additional financing, through traditional
channels,  to operate  effectively  and the Company has  endured  through  tough
times.  The Company filed suit against Toback & Company on June 21, 1999 seeking
substantial damages for their actions.

This past year has proven equally difficult for the Company, as it has for every
vendor in the industry.  Once again operating cash  shortages,  resulted in late
development and product  deliveries,  which  culminated in reduced  revenues and
increased  losses.  Coupled  with  alleged  predatory  marketing  activities  by
industry  leader  InterAct,  a  division  of  Recoton  Corp.,  the years  target
objectives  were not  achieved.  InterAct  allegedly  spearheaded  an aggressive
marketing  campaign  of buying  retailer  shelf  space  exclusively  for its own
products with key national  retailers during the 1998 Fall selling season.  This
activity had a dramatic effect on the entire industry, causing severe price cuts
and profit  erosion.  The net result of these alleged actions caused most of the
vendors in this  industry to report  large scale  losses and market cap erosion.
InterAct did gain market share, but also suffered huge looses and severe erosion
of its own share  price,  which  dropped  from over $39.  to under $9. It is the
belief  of SC & T  like  other  industries  (airline,  oil,  and  communications
sectors) our own industry is going through a major shakeout.

Despite a difficult  year,  the Company sees future  improvement as a more level
playing field emerges, once the accessory and peripheral category  consolidation
is complete.  The company  believes  there will be a thinning of the industry as
smaller  suppliers  exit this  category over the next six to eight (6-8) months.
This will open up the market to the remaining vendors.

The good news is SC & T survived this period,  reporting much smaller losses (SC
& T's  accumulated  six year losses are less than some larger  suppliers  posted
last year alone) among its competitors.

Despite the less than desirable annual results,  SC & T was acknowledged for its
development  reputation within the industry. In May of 1999, the company entered
into two strategic  marketing  alliances for it's own accessory products with VM
Labs  Inc.,   of  Mountain  View  Ca.,   developers  of  the  NUON   interactive
entertainment platform for consumer electronics. The Nuon technology is designed
to be imbedded onto the next generation of digital  products such as DVD players
and set-top boxes.  The powerful NUON operating  system provides the ability for
DVD players  (unlike VHS players which only play and record  movies) the ability
to Play Movies, play Audio CD's and to play Video Games, all from one system. As
DVD players replace VHS units over the next 3-5 years, the enhanced capabilities
of the NUON technology will revolutionize the home entertainment category.

SC & T's two strategic  licensing  agreements are critical for the Company,  and
represent  a major  marketing  coup for the  Company.  The first is a license to
market six of its current Per4mer and Air Racer racing wheel and game controller
products  incorporating the NUON technology.  The second is a co-development and
global  marketing  license for VM Labs  standard  NUON gaming  controller.  This
controller  will be  exclusively  marketed by SC & T and one other  company on a
worldwide basis.

With DVD emerging as the  replacement  product for the Beta and VHS formats (91%
of USA homes  currently  have VHS players) with DVD players  projected to exceed
units of 200  million  players  worldwide  over the next five (5) years With the
NUON technology  estimated for incorporation into over fifty plus (50+%) percent
of DVD  players  (Toshiba  is a  lead  supplier)  will  not  be  subject  to the
traditional pricing practices of retail mass marketed products. The full line of
NUON  enhanced  accessory  products from SC & T will become a market leader as a
supplier of these  products.  These products should garner higher retail prices,
and improved  gross margins for the Company.  The Company sees growth  potential
and revenue  opportunities  associated  to this  emerging  category  through its
licensing agreements with VM Labs.

In May of 1999, SC & T elected to focus its development  efforts on offering its
products at the sub $50.00  retail price level.  This segment of the retail mass
market  accounts  for  over  fifty  (50%)  percent  of  product  sales.  As  its
competitors introduce similar products at higher price points ($79.95 and up) in
an effort to recoup past  losses,  SC & T hopes the  category  will offer larger
distribution opportunities for its products.

The  Company  also  announced  plans  to  form a  software  publishing  unit  to
distribute  NUON  software  programs.  The Company  hopes to secure the required
investment  for this  project and NUON  developers  looking for  publishers  and
distributors for their products.

The  Company  is  working  to secure  additional  working  capital,  and is also
pursuing new  distribution  alliances it hopes will reduce costs and expand it's
product depth while  strengthening its position in the industry.  The Company is
also looking for ways it can diversify its interests, so it does not rely on its
existing  products for all revenues.  The Company has identified areas (NUON and
other alliances) in this regard.  The Company  continues to shed overhead costs,
and is confident that it can prevail in its efforts to grow the business.

                                        3
<PAGE>
BUSINESS - GENERAL

The Company  develops  and markets  accessory  and  peripheral  products for the
personal  computer and video game segments of the retail and  Corporate  markets
under the Company's  PLATINUM  SOUND,  PER4MER,  ULTIMATE  PER4MER and AIR RACER
registered trademarks.  The company segregates its products into two distinctive
product  categories.  The sound  products are marketed  under the Platinum Sound
brand name, while the Company's  racing wheel and other game controller  devices
are marketed  under the PER4MER and AIR RACER brand names.  The Company's  sound
products  primarily  comprise  a volume  controller,  sub-woofer  and  amplified
speaker  systems.  The PER4MER line consists of racing wheel and game controller
products,  designed for all IBM PC's, Nintendo,  Sony Playstation game consoles,
with products soon to be available for the NUON DVD player  category.  This line
also includes unique game controller  devices such as AIR RACER. The company has
developed a new Voice Recognition  keyboard which it plans to release during the
next 4-6 months.  Based on the increasing  demands of the Internet,  the company
believes it is time to re-launch this product under its new format.  The Company
will do so by aligning  itself with a major keyboard  supplier.  PLATINUM SOUND,
PER4MER, ULTIMATE PER4MER, AIR RACER are registered trademarks of the Company.

The Company focuses on the multimedia, interactive, communications and the video
gaming  segments  of the PC  and  consumer  electronics  industry.  The  Company
develops technology to furnish one-step,  integrated  solutions for the PC, NUON
and Video Game user.  The Company  began  operations  in June 1993 and  achieved
sales of  approximately  $4,733,000 and $3,405,000  during the years ended April
30, 1998 and April 30, 1999, respectively.

Since the Company's  de-listing  from the NASDAQ in October 1997,  the Company's
ongoing growth  initiatives have not materialized.  Since that time, the Company
has suffered through  difficult  times. Cut off from normal financing  channels,
the Company has continued without proper operating finances,  has seen its share
value erode and has  suffered  declines  in sales  revenues.  Despite  hitting a
revenue  high  of  $7,346,000  during  the  year  ended  June 30  1997,  and the
introduction of new and exciting  products,  the stigma associated to the Toback
resignation and the inability to secure needed  operating funds has impacted the
Company's  ability to grow its market as planned.  However,  it has survived and
has secured new alliances which will benefit the Company moving forward.

INDUSTRY OVERVIEW

The market for  multimedia  PC's and video game console  equipment  continues to
grow, and is characterized by rapid technological  change.  Unlike certain other
segments of these  markets,  the  multimedia  and gaming  segments  are consumer
driven. As a result,  many PC manufacturers have redesigned their product mix to
dramatically  increase the multimedia and entertainment portion of their product
line. Some have reconfigured their product lines so 100% of their products offer
multimedia  and  gaming  capabilities.  With the  emerging  DVD  market  and the
enhanced  NUON  technology  for DVD  players,  coupled  with SC & T's  licensing
agreements with VM Labs, new growth opportunities exist for the company.

This  Report  also refers to other  manufacturers,  retailers  and vendors as it
applies to the current marketplace.

PLATINUM SOUND PRODUCTS

The Company's  sound category  consists of a well rounded line up of Sub Woofer,
Equalizer-Amplifiers,  Headphones, Microphones, Volume Controllers and Amplified
Speaker  systems.  This product  assortment was designed to compete head to head
with top selling products offered by Altec Lansing, Yamaha, Labtec and Sony. The
Company's  development  focus was on bringing unique and innovative  products to
the market  under the  banner of "Twice the  Product  For Half The  Price."  The
Company feels its mission of delivering  fully  featured  products at aggressive
retail prices has been successful.  Product offerings have been well received by
both  retailers  and the industry  media.  Currently,  Platinum  Sound  products
account for  approximately  10% of the  Company's  annual  sales  revenues.  The
Company expects this number to grow in proportion to overall sales  revenues.The
demand for greater  sound (at  affordable  prices) by gamers and PC users alike,
has allowed SC&T a presence in this growth market.  The Company believes that it
will increase  revenues from this category as it expands its  distribution  over
the next twelve (12) months.

At  present,   the  Company  offers  three  sub  woofer   products,   a  graphic
equalizer-amplifier,  a PC volume  controller,  and three  amplified  PC speaker
products.  All  products  are  compatible  to IBM-PC's,  Macintosh  PC's,  TV's,
Stereos,  CD-ROM Players,  or other electronic  devices  utilizing RCA mini-jack
connectors.

                                        4
<PAGE>
PER4MER - AIR RACER PRODUCTS

PER4MER  Racing Wheels is a full line of video arcade  racing wheels  compatible
with Nintendo,  Sony Playstation video game consoles, all IBM PCs, and will soon
be compatible to the NUON technology platform. The wheels are arcade style input
device featuring analog and digital controls.  The wheel plugs directly into the
game  port  connection.  The SRP for this line  ranges  in the  $39.95 - $ 49.95
level.

AIR  RACER is an  innovative  3 in 1 game  controller.  Designed  to be used for
racing,  flight and general game controlling  needs. This product  introduced in
late  Fall of 1998,  despite  a late  delivery,  was well  received  in both the
Company's  North  American  and  European  operations.  The  products SRP ranges
between $39.99 - $49.99.

In 1997 the Company introduced its second generation product,  identified as the
"ULTIMATE PER4MER" line of racing wheel products. A more advanced, ergonomically
designed  product,  this new line also includes a Forced Feed Back model,  which
addresses the latest  technology to hit the video  game/PC  marketplace.  Forced
Feed Back allows the end user to feel all of the real action  (bumps,  hits, and
accidents) as displayed on the screen of the game/program being run.

Unlike the original  PER4MER  products,  the new ULTIMATE  PER4MER products have
SRPs ranging from $59.95-$149.95.

MARKETING

The Company  offers its  products to the retail video game,  OEM, and  corporate
segments  internationally,  through a  combination  of direct  sales  personnel,
independent sales  representatives,  and its wholly owned US, European and Asian
subsidiaries.

The Company's  products are currently  sold in over 25 countries,  including the
United States, Belgium, Germany, France, Italy, Finland,  Holland,  Switzerland,
Turkey,  the United Kingdom,  Argentina,  Brazil,  Spain, Hong Kong, Canada, and
Russia.  For the years  ended April 30,  1998 and April 30,  1999,  sales in the
United States  accounted for  approximately  51% and 60%,  respectively,  of the
Company's  consolidated revenue, and sales in Europe accounted for approximately
49% and 40%, respectively, of the Company's consolidated revenue.

In  the  United  States,  a  sales  representative  is  typically  paid  a  3-5%
commission. In the U.K. the company utilizes direct sales personnel. The Company
has written agreements with its United States independent sales representatives.
Agreements with independent sales  representatives have a term of one year, with
certain cancellation provisions.  The Company expects to renew its agreements as
they expire,  providing the appropriate sales revenue objectives are achieved by
each group.

In 1998, the Company opened up a distribution  alliance in South America, with a
consumer market of over 300 million people. Due to the economic  conditions that
have effected this region sales did not reach expected levels.  The Company sees
recovery in the market and greater  revenue  contributions  over the next twelve
(12) months.

Current U.S. based retail and catalogue  customers of the Company  include,  but
are not  limited to;  Best Buy,  Babbages,  Electronic  Boutique,  Data  Vision,
Egghead Direct,  Fry's Electronics,  COMP USA, and Cyberian Outpost. The Company
is targeting numerous larger retail accounts for increased distribution over the
next year, and plans to diversify into other product categories.

The Company is in negotiations  with other vendors who have shown an interest in
producing the Company's line of products,  on time, and at a reduced cost.  Even
though the Company believes it will continue to reduce its manufacturing  costs,
and align  itself  with  suppliers  that can  deliver  on time,  there can be no
assurance that the Company will be successful in its efforts.

During 1998, the Company replaced its managing director for its U.K. subsidiary.
To curb  additional  costs  during the 98-99  shakeout  period,  the Company has
reduced its  advertising  expenses by  ninety-five  (95%) since  January of this
year. The Company's  current  marketing  efforts include limited  advertising in
trade and  business  publications,  and limited  participation  in domestic  and
international  industry  trade  shows,  coupled with the  production  of product
literature  and sales support tools.  The Company's  products are marketed under
the  registered  trade names;  PLATINUM  SOUND  Multi-Media  Products,  PER4MER,
ULTIMATE PER4MER and AIR RACER.  Packaging and operating manuals are produced in
six languages, Spanish, French, German, Italian, Portuguese, and English.

                                        5
<PAGE>
The Company's sales from the United Kingdom are invoiced in U.S.  dollars and UK
pounds sterling. Expenses of the Company's international operations are incurred
in various foreign currencies, principally UK pounds sterling . Accordingly, the
Company is subject to the risk of  fluctuations  in currency  exchange rates. To
date,  the  Company has not  experienced  any  material  net gain or loss due to
foreign currency  fluctuations.  There can be no assurance that the Company will
not experience  material  adverse  effects on operations  from foreign  currency
fluctuations in the future. See "Special  Considerations - Risks Associated With
International Sales; Currency Fluctuations" contained in Item 1 of this Report.

NEW PRODUCT DEVELOPMENT

The  Company's  multimedia  keyboard line has been  discontinued,  in favor of a
second  generation  product  targeted  at  the  corporate  market.  This  second
generation   incorporates  enhanced  Voice  Recognition  features.  Even  though
completed, this product has not yet been introduced into the market. The Company
plans to do so in 1999,  however,  wishes to do so in  partnership  with a major
keyboard  manufacturer.  Over the past year, the Company has applied its primary
market focus on building the awareness on its line of PLATINUM  SOUND,  PER4MER,
ULTIMATE PER4MER, and AIR RACER products.

During the years  ended  April 30, 1998 and April 30,  1999,  the Company  spent
approximately  $317,000 and $53,000  respectively,  on research and development.
The Company expects to incur approximately  $150,000 in research and development
expenses in connection with development of new products during fiscal 2000.

SUBSIDIARIES

On December 31, 1994,  the Company  purchased all of the  outstanding  shares of
Westex N.V. for 210,000 shares of the Company's Common Stock. This agreement was
renegotiated in June 1996, resulting in the forfeiture of 200,000 shares and the
obligation,  subject to certain  contingencies,  to issue  25,000  shares of the
Company's  Common Stock.  Westex N.V. was incorporated in Belgium in March 1989.
During 1998, in an effort to reduce operating  costs,  the Company  consolidated
its European  distribution  operations into one central  facility located in the
United Kingdom.  In May,1997 the Company formed SC&T Europe Limited,  located in
Portsmouth England. All current marketing and distribution operations, including
a United Kingdom  domestic  sales force,  is now being handled out of the United
Kingdom.  For the year ended  April 30, 1998 and April 30,  1999,  sales by SC&T
Europe accounted for approximately  $2,342,000 and $1,372,000  respectively,  of
the Company's consolidated revenue.

In June of 1998, the Company opened a wholly owned subsidiary in Hong Kong. This
facility was  established to oversee all  manufacturing  issues of the Company's
products.

The Company has independent  distribution  networks in Canada and South America.
Neither of these facilities are wholly owned subsidiaries of the Company.

The  Company's  European  sales are typically  invoiced in U.S.  dollars or U.K.
pounds  sterling.  The Company's  sales from the United  Kingdom are invoiced in
U.S.  dollars  and pounds  sterling.  Expenses  of the  Company's  international
operations  are incurred in various  foreign  currencies,  principally UK pounds
sterling and in U.S. dollars. Accordingly, the Company is subject to the risk of
fluctuations in currency exchange rates. To date the Company has not experienced
any material net gain or loss due to foreign currency fluctuations. There can be
no  assurance  the  Company  will not  experience  material  adverse  effects on
operations from foreign currency fluctuations in the future.

                                        6
<PAGE>
COMPETITION

The PC,  multimedia,  and video  game  retail  markets  in  general  are  highly
competitive.  The events of this past year were detailed in the opening  section
of this  report.  Many of the  Company's  competitors  have  greater  financial,
technical,  marketing, and sales resources than the Company. The Company's major
competitors  in  the  multimedia   accessory  and  peripheral  market  are  NMB,
Maxiswitch,  Altec  Lansing,  Yamaha,  Sony,  and Labtech.  The Company's  major
competitors  in the video game  racing  wheel  market  will come from  InterAct,
Thrustmaster and MadCatz.  This highly  competitive arena in 1998 generated huge
losses for every major player within the  category.  By virtue of SC & T's size,
limited  operating  capital and decision to sell less  product last year,  these
actions  resulted  in  substantially  lower  losses  for the  company  than were
experienced  by other  suppliers in this  category.  The Company  survived  this
period, and is continuing to fight towards increased sales and profitability. In
an effort to reduce its reliance on its current  line of  products,  the Company
plans to expand its  product  line by  incorporating  a wider  range of products
which will target a broader base of customers.

INTELLECTUAL PROPERTY RIGHTS

Although the Company  considers  certain of its products to be proprietary,  the
Company  manufactures  certain of its  product  lines  through  the  assembly of
component parts which are readily available in the world marketplace.  There are
few  barriers   preventing  others  from  designing,   assembling,   or  reverse
engineering products similar to those sold by the Company.

To defend  against its  competition,  the Company's  philosophy is to design and
market  products  of high  quality  and  features,  which  can be sold for lower
prices.  The Company is also focussing efforts to identify other marketing areas
so it can diversify its reliance on a single  product  niche.  The Company feels
continued product diversity offers stronger long-term opportunities, and reduces
the inherent  downside risk to more competitive and seasonal product  offerings.
Unlike its  competitors  whose  market  penetration  is much  larger,  every new
customer account  represents new revenue and growth for the Company.  Due to the
expanding  Internet  sector,  the company sees the market for its new integrated
voice recognition  keyboard as a new product-category  opportunity.  The Company
plans  to  align   itself  with  a  brand  name   keyboard   supplier   for  the
re-introduction of this product.

                                        7
<PAGE>
The Company competes primarily on the basis of design, quality, reliability, and
the ease of use of its products.  The Company also competes on value relative to
the features offered by its products. Competitive price reductions may, however,
have an adverse effect on the Company's revenue and profitability.  See "Special
Considerations - Competition" contained in Item 1 of this Report.

The Company's  success is dependent,  in part, on its  proprietary  information,
technology  and  know-how.  The  Company  relies on a  combination  of  patents,
copyrights,   trademarks,  trade  secrets,  and  confidentiality  agreements  to
establish and protect its proprietary  rights.  Despite these efforts, it may be
possible for  competitors or users to copy aspects of the Company's  products or
to obtain information that the Company regards as a trade secret.

In  February,  1998 the U.S.  Patent  Office  granted  numerous  patents  on the
Company's  Multimedia-Telephony  keyboard  technology.  The Company has filed an
international patent application designating Europe, Japan,  Australia,  Canada,
Brazil,  China,  and South Korea.  Presently the Company is  finalizing  license
agreements  with Maxi  Switch,  Silitek and NMB.  All are  marketers  of similar
technologies  which infringe on the Company's patent. The Company has started to
receive  Royalty  revenues and believes it has the potential to generate  strong
annual  revenues for it's  technology  as the demand by  corporations  to reduce
workspace  clutter and improve  productivity will result in increased demand for
keyboards which integrate the Company's  technologies..  The company has entered
into two royalty  agreements to date,  which should generate royalty revenues of
approximately $200,000 USD per annum.

Although the Company believes patent, trade secret, and copyright protection are
significant to its competitive  position,  other factors also exist.  Knowledge,
ability, and experience of the Company's personnel, the Company's success at new
product development and enhancements,  and name recognition are more significant
to its competitive position.

RAW MATERIALS - SUPPLIES -DELIVERY

The Company receives and inspects  finished  products and component parts at its
United  States and UK  facilities.  The Company  tests a sample of all delivered
products for compliance with  specifications.  The Company's  principal supplier
has not had a good on time delivery  record,  and its quality has not been up to
standard on numerous  products.  As such, the Company is negotiating  with other
suppliers to correct this  problem.  The  interruption  of supply has  adversely
affected  the  Company's  ability to supply  certain of its products in a timely
manner,  and the Company has suffered lost revenues as a result. The Company has
incurred large write down costs in the past , but feels this will not be a major
factor moving forward due to its ability to focus on key products in its product
line assortment.

EMPLOYEES

As of April 30, 1999,  the Company's  United States  operation had ten full-time
employees.  The Company's UK subsidiary employed five full-time employees.  It's
Hong Kong office  employed  two persons.  None of the  Company's  employees  are
represented by a labor union. The Company believes its employee relations are in
good  standing.  The  company  also has  contracts  with  independent  sales rep
organizations for sales of its products within the U.S. market.

                             SPECIAL CONSIDERATIONS

LIMITED OPERATING HISTORY

The Company  commenced  operations in June of 1993 as a producer and marketer of
CD-ROM audio cables. In October 1993, the Company began developing PC multimedia
accessory  products.  In 1996,  the Company  entered the computer and video game
markets with the  introduction  of a line of PC and video arcade racing  wheels.
Accordingly, there is limited historical financial information about the Company
upon which to base an evaluation of the Company's performance.  In addition, the
Company's  business will be subject to many of the problems,  expenses,  delays,
and risks inherent in the establishment of a new business enterprise,  including
limited  capital,   possible  cost  overruns,   uncertain   market   acceptance,
competitive   activity  and  the  absence  of  an  operating  history.   Despite
significant  obstacles,  the Company has continued  operations,  and against all
odds, has succeeded in moving  forward.  However,  there can be no assurance the
Company's  business  will be  successful  or that  the  Company  will be able to
achieve or maintain profitable operations. See "Business" contained in Item 1 of
this Report.

                                        8
<PAGE>
HISTORY OF LOSSES

The Company has  incurred  operating  losses since  inception,  and reported net
losses of $2,085,756 and $3,255,945 for the years ended April 30, 1998 and April
30, 1999,  respectively.  As of April 30, 1999,  the Company had an  accumulated
deficit of over  $15,000,000.  Losses incurred since inception are  attributable
primarily to start-up costs  incurred in developing the Company's  product line,
the costs of  introducing  new products to market,  inventory  adjustments,  and
costs associated with financing activities prior to the Company's initial public
offering.  To date,  operating  revenues have not been sufficient to cover these
costs.  The Company had revenue of  approximately  $3,405,000 for the year ended
April  30,  1999,  a  decrease  of  approximately  $1,328,000  over  revenue  of
approximately $4,733,000 for the year ended April 30, 1998. The Company reported
a net loss for the year ended April 30,  1999.  Competitive  activities  for the
last year  intensified.  There can be no  assurance  the Company  will  generate
sufficient operating revenue, expand sales of its products, or control its costs
sufficiently to achieve or sustain profitability. However, the Company continues
to explore additional investment  opportunities,  as it believes with the proper
financing in place, its future ability to reach profitability can be achieved.

The  Company  policy  has  always  been  to  write  down,  and  report  obsolete
inventories.  It has  continued  to  develop  new  products,  at a  cost  to the
Company's  bottom line.  The Company has  maintained  an open book with industry
press releases on all material aspects of the Company's  operations.  Management
of the company firmly  believes the two primary  roadblocks for the Company have
been its  inability  to obtain  the  necessary  operating  capital to ensure its
product  development  and customer orders are produced and delivered in a timely
manner. Had this not been a problem, results would have greatly improved.

See "Management's  Discussion and Analysis of Financial Condition and Results of
Operations" contained in Item 6 of this Report.

COMPETITION

The  Company  faces  competition  from  several  major  competitors  that market
multimedia,  accessory, and peripheral computer products, and computer and video
game   products.   Many  of  these  products  are  marketed  by  companies  well
established,  have  reputations  for  success  in the  development  and  sale of
products,  and have significantly  greater financial,  marketing,  distribution,
personnel,  and other  resources  than the Company.  See Opening  Statement  and
"Special  Considerations - Litigation"  contained in Item 1 of this Report.  The
Company  expects  direct and indirect  competition is likely to intensify in the
future.  There  can  be no  assurance  the  Company  will  be  able  to  compete
successfully. See "Business - Competition" contained in Item 1 of this Report.

YEAR 2000 READINESS

The  year  2000  (Y2K)  is an  issue  putting  at  risk  systems,  products  and
specialized  hardware  utilizing date sensitive  computer chips or software with
two-digit date fields will fail to properly recognize the year 2000. As a direct
result of this  concern the Company has upgraded all hardware and software to be
Y2K  compliant.  Management  has taken  these  measures  to insure all  computer
hardware  and  software  will be able to function  as the year 2000  approaches.
However,  there is no assurance all the suppliers and vendors of the Company are
Y2K compliant, and therefore it is possible some business interruption may occur
as a result.

                                        9
<PAGE>
TECHNOLOGICAL CHANGE AND NEW PRODUCTS

The PC, internet, multimedia,  computer, and video game markets in general, have
been  characterized  by rapid  technological  change,  frequent  introduction of
product  upgrades,  and evolving  industry  standards.  The Company believes its
future  success  will depend on its ability to  anticipate  such  changes and to
offer the market responsive products on a timely basis which meet these evolving
industry standards and achieve market acceptance.  Due to insufficient operating
capital, the Company has been hindered in its ability to achieve  profitability.
There can be no assurance the Company will have sufficient  resources to develop
or otherwise  acquire new  technology  or to introduce  new products  that would
satisfy an expanded range of customer needs. Additionally, delays in new product
introductions  or product  enhancements  could  adversely  affect the  Company's
operating results in the future.  The Company has experienced delays in delivery
schedules on new product introductions. See "Business New Product - Development"
contained in Item 1 of this Report.

DEPENDENCE ON KEY PERSONNEL: NEED TO ATTRACT NEW PERSONNEL

The  loss  of the  services  of  James  L.  Copland,  the  Company's  President,
Treasurer,  Chairman  of the Board and Chief  Executive  Officer,  would  have a
material  adverse  effect upon the  Company.  The Company  maintains a five-year
employment  agreement with Mr. Copland.  The agreement includes  non-competition
and non-solicitation  provisions for a 12-month period following  termination of
employment.   Mr.  Struthers,  the  Company's  Executive  Vice  President,  also
maintains a five year agreement.  Ms. Catherine  Copland  maintains a three year
agreement.  Similar terms and conditions  apply for these two  individuals.  The
Company  maintains  key man life  insurance  on Mr.  Copland  in the  amount  of
$1,000,000.  The Company has assigned one-half of the proceeds of this policy to
the estate of the  insured.  The  Company's  success  also is  dependent  on its
ability to identify,  recruit,  and retain  additional  experienced  management,
engineering, and marketing personnel. There can be no assurance that the Company
will be able to hire or retain necessary  personnel.  The failure of the Company
to attract and retain  personnel  with the requisite  expertise or to internally
develop  personnel with such expertise could  adversely  affect the prospects of
the Company's success.  See "Directors and Executive Officers of the Registrant;
Compliance with Section 16(a) of the Securities  Exchange Act of 1934" contained
in Item 9 of this Report and "Executive  Compensation  - Employment  Agreements"
contained in Item 10 of this Report

RELIANCE UPON MAJOR CUSTOMERS

Three customers were responsible for 9-11% each of the Company's net revenue for
the year ended April 30, 1999.  The total of these three  customers for the year
ended April 30, 1999 represented 30% of the net revenue for the year ended April
30, 1999.

DEPENDENCE ON THIRD PARTY SUPPLIERS

The Company does not have supply  agreements  with any of these  suppliers.  The
Company has not experienced any material  difficulties in obtaining  supplies in
the past with the exception of timely  delivery of new products from its primary
manufacturer.  The Company believes additional  suppliers are identifiable,  and
accepts any  reduction or  interruption  in supply from its vendors or suppliers
would  adversely  affect  the  Company's  ability  to supply  orders in a timely
manner. See "Business - Raw Materials and Supplies"  contained in Item 1 of this
Report.

RISKS ASSIOCIATED WITH INTERNATIONAL SALES - CURRENCY FLUCTUATIONS

Expenses from foreign  operations are not denominated in U.S. dollars.  Expenses
denominated in foreign currency accounted for approximately 26% of the Company's
expenses for the year ended April 30, 1998,  and 36% of the  Company's  expenses
for the year ended April 30, 1999.  The Company's  operations  abroad expose the
Company to risks such as  exposure  to currency  fluctuations,  exchange  rates,
tariffs and other barriers,  differing standards  requirements,  difficulties in
staffing   and   managing   international   operations,   differing   regulatory
requirements, potentially adverse tax consequences, and country-specific product
requirements.  In  addition,  the  Company  is  exposed  to gains and  losses on
international currency transactions.  Currently,  the Company does not engage in
international  currency  hedging  transactions.  There can be no assurance  that
these factors will not have an adverse impact on the Company's future revenue or
operating  results.  See  "Business  -  Marketing"  contained  in Item 1 of this
Report.

INTELLECTUAL PROPERTY - PATENTS

The Company's  success is dependent,  in part, on its  proprietary  information,
technology,  know-how  and the  company's  ability to deliver its  products in a
timely  manner.  The Company  relies on a  combination  of patents,  copyrights,
trademarks,  trade  secrets,  and  confidentiality  agreements  to establish and
protect its proprietary  rights.  Despite these efforts,  it may be possible for
competitors  or users to copy  aspects of the  Company's  products  or to obtain
information  that  the  Company  regards  as a trade  secret.  See  "Business  -
Intellectual  Property Rights" and "Business - Legal  Proceedings"  contained in
Item 1 of this Report.

                                       10
<PAGE>
SEASONALITY - FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

As new  standards or  significant  new products are  introduced in the industry,
sales  may  slow  significantly  while  the  market  reacts  to  these  factors.
Therefore, the Company's revenue may vary significantly from quarter to quarter.
Additional  factors  which may affect  revenue  include  the timing of  customer
orders,  changes in the Company's  product and customer mix, the introduction of
new products by the Company,  pricing pressures,  and economic  conditions.  The
Company also incurs  significant  development,  sales, and marketing expenses in
anticipation of future sales. If demand for the Company's  products weakens,  or
if orders are not shipped in any quarter as anticipated,  the Company's  results
of operations  for the quarter could be adversely  affected.  See  "Management's
Discussion  and  Analysis of  Financial  Condition  and  Results of  Operations"
contained in Item 6 of this Report.

NEED FOR ADDITIONAL FINANCING - ALLIANCES

The Company completed its initial public offering in December 1995. In addition,
the Company  completed a private  placement of preferred stock in June 1996. The
Company's  continued  viability  will be dependent  upon its ability to generate
cash from operations or to obtain  additional  financing  sufficient to meet its
obligations  as they become  due.  Unless the  Company  can  generate  cash from
operations  sufficient to fund all of its operating  needs,  the Company will be
required to obtain additional financing. It is currently anticipated the Company
will  require  additional  working  capital to continue to fund its  operations.
Management  is  actively  exploring  both debt and equity  financing  as well as
holding discussions with potential merging partners in order to obtain such debt
or equity  financing.  The Company is actively  pursuing  additional  investment
capital,  however,  there is no assurance that management will be able to obtain
such financing.

The Company has a factoring  agreement to finance its U.S.  receivables  through
Sun Capital  Inc.  The  Company's  need to factor it's  receivables  is a direct
result of a lack of  working  capital by the  Company.  Such an  arrangement  is
expensive  and has an  adverse  effect on the  Company's  operational  expenses.
Similar arrangements for the Company's European receivables do not exist at this
time.

Over the past  year the  Company  has  incurred  large  legal  costs  due to the
resolution  efforts it's past preferred  shareholder  and  de-listing  problems,
coupled with other issues arising from the latter.  The Company has also written
down large inventories in the past. The Company does not feel that such expenses
or product write-downs are likely to occur during the next fiscal period.

LITIGATION

The Company is currently  involved in various legal  proceedings.  To the extent
that these lawsuits  requires  management time and other  resources,  results of
operations  may  be  negatively  impacted.   See  "Business  Legal  proceedings"
contained in Item 3 of this Report.

CONVERSION - PREFERRED STOCK

In June,1996  the Company  issued 1,051 shares of series A Preferred  Stock in a
private  placement  resulting  in proceeds to the  Company of  $10,510,000.  The
private  placement  was  made  to  a  group  of  institutional  investors  under
Regulation S as promulgated  by U.S.  Securities  and Exchange  Commission.  The
Series A Preferred Stock was convertible into common stock at a conversion ratio
based upon the average  closing bid price of the Company's  common stock for the
ten trading days prior to conversion.  Because of the steep decline in the price
of the Company's common stock, the preferred stock became  convertible into more
shares than the amount of common stock of the Company authorized by the Articles
of Incorporation. The Company, in 1998, entered into agreements with the holders
of all of the Series A Preferred  Stock  whereby all of their shares of Series A
Preferred Stock are tendered for conversion at a fixed conversion price of $1.00
per share (the "Fixed  Conversion").  In addition to the fixed Conversion Price,
the  holders  of the Series A  Preferred  Stock will also  receive  warrants  to
purchase  one-third of the number of shares  which they receive  pursuant to the
Fixed  Conversion  price at a price of  $1.75  per  share  subject  to  ordinary
anti-dilution  provisions  (the "Warrant  Shares').  The holders of the Series A
Preferred Stock waived all other conversion  rights which they may have pursuant
to any agreement.  The Company did not have an adequate  number of common shares
to convert all the new warrants,  all the previously issued warrants outstanding
and employee  stock  options.  On or about October,  1997,  James  Copland,  the
Chairman of the Board,  President,  Treasurer and Chief Executive Officer of the
Company,  turned in  1,500,000  shares of common  stock held by him to allow the
Company to issue  common stock in  conversion  of  preferred  shares.  In return
therefore,  the Board of  Directors  voted to issue Mr.  Copland 15 shares of of
$100,000 face value preferred stock. The Board of Directors  determined this was
a fair price for the  surrender  of the shares based on the fact prior offers by
other shareholders would have been sufficient at a substantially  higher cost to
the Company if it had  accepted  these  offers and due to the fact the return of
the shares resulted in reducing the outstanding  convertible  preferred  shares.
The preferred  shares are convertible into common stock at the rate of 12 shares
for every $1 of face value of the Series B Preferred  stock.  In  addition,  the
President  received $150,000 in cash for the additional 148,444 shares returned.

                                       11
<PAGE>
The Company  believes all of the  foregoing  transactions  were on terms no less
favorable  to the Company than could have been  obtained  from  unrelated  third
parties. The Company intends to continue to require any future transactions with
affiliated  parties  be  on  such  terms  and  approved  by a  majority  of  the
disinterested directors.

PROXY APPROVAL

In July of 1998 shareholders of the Company approved two Motions.  The first, to
increase the number of authorized  shares by  50,000,000,  bringing the total to
75,000,000.  The second motion approved by the  shareholders was a reverse stock
split. On April 23, 1999 the Company  initiated a reverse stock split in a ratio
of one (1) new share for eighteen (18) of its shares of common stock.

LACK OF DIVIDENDS

The Company has never paid any cash  dividends  on its Common Stock and does not
anticipate it will pay dividends in the foreseeable future. Instead, the Company
intends to apply any earnings to the expansion and development of its business.

CHANGE IN CONTROL PROVISIONS

The Arizona  General  Corporation  Law  contains  provisions  which may have the
effect of making more difficult or delaying attempts by others to obtain control
of the  Company,  even  when  these  attempts  may be in the best  interests  of
shareholders.

LIMITED LIABILITY OF COMPANY DIRECTORS

The  Company's  Amended and Restated  Articles of  Incorporation  eliminate  the
personal  liability  of a  director  to the  Company  and its  shareholders  for
monetary damages for breach of fiduciary duty of care as a director,  subject to
certain exceptions,  to the fullest extent allowed by Arizona law.  Accordingly,
except in such circumstances,  the Company's directors will not be liable to the
Company or its shareholders for breach of such duty.

POSSIBLE VOLATILITY OF STOCK PRICE

The Company's  Common Stock and Warrants issued to the public in connection with
the Company's initial public offering ("IPO Warrants") were traded on The NASDAQ
Stock Market, Inc. ("NASDAQ")  SmallCap Market.  Since the Company's  de-listing
it's common stock has traded on the Over the counter bulletin board. The trading
price of the  Company's  Common  Stock in the  future  could be  subject to wide
fluctuation  in  response  to factors  such as  technological  innovations,  new
product  developments,  general  trends in the  Company's  industry,  as well as
quarterly   variations  in  the  Company's  results  of  operations  and  market
conditions  in  general.   During  certain  periods,   the  stock  markets  have
experienced  extreme  price and  volume  fluctuations  which  have  particularly
affected the market  prices for many small  companies  and which often have been
unrelated to the operating  performance  of such  companies.  These broad market
fluctuations  and other  factors may  adversely  affect the market  price of the
Company's  Common  Stock.  See "Market for the  Registrant's  Common  Equity and
Related Stockholder Matters" contained in Item 5 of this Report.

MAINTENANCE CRITERIA - FOR NASDAQ SECURITIES

On October 22, 1997, the Company's shares of common stock,  which were traded on
the NASDAQ  Smallcap  market under the symbol  "SCTI," were de-listed by NASDAQ.
This  action  was taken on  account  of the  Company's  failure to file its form
10-KSB in a timely  manner.  The  failure  of the  Company  to meet this  filing
requirement  was the direct result of the untimely  resignation of the Company's
accounting firm, Toback CPAs, P.C. The Company  immediately began a search for a
new accounting firm,  retaining Evers & Company.  The Company has since retained
King, Weber and Associates,  P.C. who has now acted as the Company's independent
accounting  firm for the audit of the current years  financial  statements.  The
Company is appealing  its  de-listing  and has asked NASDAQ to relist the common
stock of the Company.  The Company is unable to predict  whether NASDAQ will act
favorably on such request.

PENNY STOCK RULES

Because  the  Company is no longer  listed on the NASDAQ  Smallcap  market,  the
common stock of the Company  falls within the  definition of "penny stock" under
the  Securities  Exchange  Act  of  1934.   Accordingly,   brokers  engaging  in
transactions  in the  Company's  common stock are required to provide a customer
with  risk  disclosure  documents,  disclosure  of  market  quotations,  if any,
disclosure of  compensation  of the  broker/dealer  and the  salesperson  of the
transaction  and  monthly  accounting  statements  showing  the  accounts.  This
de-listing has prohibited the company from seeking additional  operating capital
through traditional channels. These rules create a "less willingness" by brokers
to engage in  transactions  in the Company's  securities  due to an OTC listing,
therefore  increasing  the  difficulty  the company to raise funds and for those
investors to dispose of their securities.

                                       12
<PAGE>
SHARES OUTSTANDING

Due to the  issuance of shares of common stock to convert the Series A Preferred
Stock, the Company had  approximately 25 million shares of common stock trading.
This amount of "trading  stock" had an adverse affect for the prevailing  market
price of the Company's common stock. To improve  shareholder  value, the Company
effected a 1 for 18 stock reverse on April 23, 1999.  This in turn,  reduced the
number of  common  "trading  shares"  to an amount  equal to  approximately  1.5
million common shares.

LOOKING FORWARD INFORMATION MAY PROVE INACCURATE

This Report contains  various  forward-looking  statements that are based on the
Company's  beliefs  as well as  assumptions  made by and  information  currently
available  to the  Company.  When  used in this  Report,  the  words  "believe,"
"expect,"  "anticipate,"  "estimate,"  and similar  expressions  are intended to
identify  forward-looking  statements.  Such  statements  are subject to certain
risks, uncertainties, and assumptions, including those identified under "Special
Considerations." Should one or more of these risks or uncertainties materialize,
or should  underlying  assumptions  prove  incorrect,  actual  results  may vary
materially from those  anticipated,  estimated or projected.  In addition to the
other risk factors set forth above, among the key factors that may have a direct
bearing on the Company's  results are  competitive  practices in the multimedia,
interactive,  and  communications  segments of the PC and video game  industries
(generally and particularly in the Company's  principal  product  markets),  the
ability of the Company to meet existing  financial  obligations  in the event of
adverse industry or economic  conditions or to obtain additional capital to fund
future commitments and expansion, the Company's relationship with employees, and
the impact of current and future laws and governmental regulations affecting the
PC and video game industries and the Company's operations.

ITEM 2. FACILITIES

In March,  1999 the Company relocated its US operations to a facility located in
the Scottsdale Airpark in Scottsdale, Arizona. The facility leases approximately
6500 square  feet of  warehouse  space and  approximately  2,000  square feet of
executive  office space for  approximately  $7000 per month.  The lease  expires
February 28, 2002.

The Company's European  subsidiary is located in Portsmouth in the U.K. The U.K.
office  currently  leases  approximately  11,000  square feet for  approximately
$9,435  per  month.  The lease  expires  May 12,  2003,  with a three year break
option.

The Company  anticipates  that its  facilities  are  sufficient  for its current
needs.  To the extent  additional  warehousing  space is  required,  the Company
intends to lease off-site, short-term storage facilities.

ITEM 3. LEGAL PROCEEDINGS

Pending or Threatened Litigation

a. The Company v. Maxi Switch

On May 13,  1997, a Pima County jury  awarded  SC&T  $3,000,000.00  against Maxi
Switch,  Inc.,  Silitek  Corporation,  and  Lite-On  Peripherals,  Inc.  for the
defendants'  breach of contract and  misappropriation  of SC&T's  trade  secrets
related to SC&T's Platinum Sound Multimedia Keyboard products. On June 30, 1997,
a formal  Judgment  was  signed  by the Judge for  $3,160,885.10,  which  amount
included  attorney's fees and court costs. The defendants posted a $3,200,000.00
bond  pending post trial  motions,  and the post trial  motions were denied.  On
January 5, 1998, the Court ordered the  defendants to add a further  $500,000.00
to the bond for  additional  costs on appeal,  and also  ordered  that the 5.15%
interest being earned on the principal amount to be added to the bond. Thus, the
total bonded amount is now  $3,700,000.00,  plus 5.15%  accruing  interest.  The
company settled this award in 1998 for approximately $ 1,825,000.

                                       13
<PAGE>
b. Home Arcade v. the Company

In September of 1997,  Home Arcade filed suit in San Jose,  California,  against
the Company re a license dispute.  The Company has denied breaching the contract
and instructed  counsel to vigorously  defend the case. Due to the recent filing
of the case,  counsel has not yet been able to develop an opinion with regard to
the timing or likely results of this litigation. However, management believes it
has committed no  wrongdoing.  The company is preparing  for  litigation at this
time.

c. Jack Of All Games v. the Company

In June of 1997,  Jack Of All Games  Entertainment,  Inc.,  sued the  Company in
Cincinnati,  Ohio,  for breach of contract  regarding a purchase order for 5,000
steering  wheels.  Jack Of All Games is seeking  $179,272.80,  plus interest and
attorneys fees.  Management  intends to vigorously defend this case or settle it
based on the provision of replacement product. The parties had previously agreed
to a product exchange and the Company expects a product exchange to occur.  This
litigation  should  be  concluded  within  the  year,  and  if  settled  through
arbitration, the maximum exposure to the company would be reduced to $ 100,000.

d. The Company v. Toback & Company

In June 1999 SC&T  filed  suit  against  Toback &  Company  seeking  substantial
damages for the firms untimely  resignation in September of 1997.  These actions
caused the  de-listing  of SC &T's shares from the NASDAQ  Stock  Exchange.  The
Company alleges  Toback's actions were  premeditated  and  unnecessary,  causing
severe damage to the Company.  The Company is seeking  damages  against Toback &
Company in this  regard.  The Company  believes  it will  prevail in it's action
against Toback & Company.

e. The Company v. Santiago Villa

SC  &T  has  filed  suit  against  its  former   landlord   seeking  to  collect
approximately  $20,000 in escrow  funds not  disbursed  to the  Company  when it
vacated  it's  former  offices.  The Company  believes  it will  prevail in this
action.

UNASSERTED CLAIMS AND ASSESSMENTS

The Company has a wheel product which includes "force-feedback"  technology as a
new version to its racing wheel. The Company has been contacted by Atari.  Atari
expressed  a desire to  evaluate  the  Company's  force-feedback  technology  to
determine  whether  it  violates a patent  possessed  by Atari.  The  Company is
presumptively  protected under the circumstances  because the Company obtained a
license  for the  force-feedback  technology  from  another  company,  Immersion
Corporation.  Immersion  Corporation  has  indemnified  the  Company  for patent
infringement  liability.  However,  should Atari successfully  enjoin Immersion,
sales of the  Company's  force-feedback  racing wheel would be impacted,  or the
Company might have to seek a license from Atari.

                                       14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

The Company's  Common Stock and IPO Warrants were quoted on the NASDAQ  SmallCap
Market under the symbols  "SCTI" and "SCTIW,"  respectively,  from  December 14,
1995 through  October 22, 1997. The company now trades on the OTC Bulletin board
under the symbol "SCTU".

The following  table sets forth the quarterly low bid and high ask prices of the
Company's Common Stock for the calendar periods indicated on the NASDAQ SmallCap
Market. (Adjusted for reverse stock split.)

                                                                 COMMON STOCK
                                                               -----------------
                                                                BID         ASK
                                                               -----       -----
1997
  Fourth Quarter                                               10.68       16.24

1998
  First Quarter                                                  .72        5.62
  Second Quarter                                                2.47        6.84
  Third Quarter                                                 1.44        3.60
  Fourth Quarter                                                1.26        2.79

1999:
  First Quarter                                                  .91        1.62
  Second Quarter                                                 .90        2.63
  Third Quarter                                                  .68         .75

On October 22, 1997, the Company's shares of common stock,  which were traded on
the NASDAQ  Smallcap  market under the symbol "SCTI" were delisted by NASDAQ and
are now traded on the over the  counter  market.  See Part I, Item 1 for further
discussion.  The Company has never paid any cash  dividends on its capital stock
and does not  anticipate  paying any cash dividends in the  foreseeable  future.
Instead,  the Company intends to retain any earnings to provide funds for use in
its business.

                                       15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA; MANAGEMENT'S DISCUSSION AND ANALYSIS
        OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                      SELECTED CONSOLIDATED FINANCIAL DATA

The following table summarizes certain selected  consolidated  financial data of
the Company and is qualified in its entirety by the more  detailed  Consolidated
Financial  Statements and Notes thereto appearing elsewhere herein. The data has
been derived from the financial statements of the Company audited by King, Weber
& Associates,  P.C. for the year ended April 30, 1999 and Evers & Company,  Ltd.
for the ten months ended April 30, 1998

                                Year Ended April 30,   10 Months Ended April 30,
                                       1999                      1998
                                    ----------                ----------
Operating Data:
Net sales                           $3,405,313                $4,733,558
Net loss                             3,255,945                 2,085,756
Loss per share                            2.10                      1.61
Average shares outstanding           1,554,018                 1,296,972

                                                April 30, 1999
                                                --------------
Balance Sheet Data:
Working capital                                   $ (390,744)
Total assets                                       2,728,092
Shareholders' equity                                 111,895

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

OVERVIEW

SC&T  International,  Inc. (the  "Company") was formed in June 1993. The Company
develops  and markets  accessory  and  peripheral  products for the computer and
video  game  industries   under  its  PLATINUM  SOUND  and  PER4MER   registered
trademarks.   The  Company's  products  include  sub-woofer  and  speaker  sound
enhancement  systems, PC volume  controllers,  and a line of PC and video arcade
racing wheels for SEGA, Nintendo,  Sony Playstation and IBM-PC's.  The Company's
multimedia keyboards line has been discontinued, in favor of a second generation
product targeted at the corporate market.  This second  generation,  features an
enhanced Voice Recognition  product, has been completed but at this time has not
been introduced into the market.

On December  31,  1994,  the Company  purchased  SC&T  Europe,  a marketing  and
distribution  company located in Antwerp,  Belgium. The Company, in an effort to
reduce its European operating costs, has consolidated its European  distribution
operations into one central facility located in the United Kingdom.  In May 1997
the Company formed SC&T Europe Ltd., located in Portsmouth England which handles
all marketing  and  distribution  operations  for Europe and the UK. The Company
established a subsidiary  as of June 1, 1998,  in Hong Kong,  known as SC&T Asia
Limited.

                                       16
<PAGE>
Despite the  expansion in customers  and the  corresponding  increase in revenue
since commencing  operations,  the Company's total operating  expenses  exceeded
revenues, resulting in a net loss of approximately $3,255,000 for the year ended
April 30,  1999.  The  Company's  primary  costs are for R & D,  tooling  of new
products, inventory, trade shows, selling and promotion,  write-down of obsolete
inventory,  and legal  expenses,  which increased  significantly  for the period
ended April 30, 1998 due to the resolution of the preferred  shareholder  issue.
See  "Conversion  of Preferred  Stock"  contained in Item 1 of this report.  The
Company  expects  certain of these  costs to  decrease  along  with  anticipated
expansion of sales. In addition,  operating results may be influenced by factors
such as demand for products,  timing of new products by both the Company and its
competitors, pricing by both the Company and its competitors,  inventory levels,
the ability to develop and market new products,  the Company's ability to supply
products at high quality levels and at reasonable  costs,  the timing and levels
of sales and marketing expenditures, and general economic conditions.

NET SALES

Net  sales for the year  ended  April 30,  1999 were  approximately  $3,405,000,
approximately  a  $1,328,000  decrease,  28%,  from net sales for the year ended
April 30, 1998. Of the $1,328,000  decrease $970,000 was due to reduced sales by
the Company's Uk subsidiary. Continued poor performance by the UK subsidiary has
caused  Management  to seriously  review how it does business in Europe and look
for more cost effective methods to secure European sales with reduced costs. The
decrease  in net  sales  for the years  ended  April 30 1999 and April 30,  1998
resulted from a variety of factors  including a lack of operating  capital which
resulted in delays in  manufacturing  and delivery in the fourth  quarter of new
products  scheduled  for sale during the 1998  Christmas  selling  season.  Such
delays  increased  the costs to  deliver  products  and in  product  returns  by
retailers and increased  sales  discounts  given to customers to complete  sales
agreements.

GROSS PROFIT

The  Company's  gross profit  percentage  for the years ended April 30, 1999 and
April 30, 1998 reflects the  Company's  decision to reduce the price for certain
first generation products remaining in inventory in anticipation of newer second
generation  products.  The gross profit  percentage for the year ended April 30,
1998 was also affected by the write-down of certain  inventory of  approximately
$835,000.  The  write-down  for inventory  obsolescence  was adjusted to reflect
concern about  increased  inventory and possible  price  adjustments  to improve
market  acceptance  of  the  Company's  products.  The  Company's  gross  profit
percentage  for the year ended  April 30,  1999 was 10%,  which  resulted  in no
change from the gross profit percentage for the year ended April 30, 1998, 10%.

PAYROLL & PAYROLL TAXES

The  Company's  payroll and payroll tax  expense  decreased  significantly  from
approximately  $1,140,000  in the year ended April 30,  1998,  to  approximately
$725,000 in the year ended April 30, 1999, or  approximately  36%. A significant
portion of the decrease was due to a continued  effort by  management  to reduce
expenses and  increase  employee  productivity.  Payroll and payroll tax expense
decreased as a percentage  of sales,  from 24% for the year ended April 30, 1998
to 21% for the year ended  April 30,  1999.  The Company is required to employ a
base staff of qualified personnel to maintain its operations.

SELLING & PROMOTION

The  Company's  selling and  promotion  expenses  increased  from  approximately
$1,072,000 in the year ended April 30, 1998 to  approximately  $1,144,462 in the
year ended April 30, 1999, or  approximately  7%. This represents an increase in
selling and promotion  expenses,  as a percentage of sales, from 23% for the ten
months  ended April 30, 1998 to 33% for the year ended April 30, 1999. A portion
of these expenses were utilized to continue  promoting new products and creating
new packaging for new products. The increase in selling and promotional expenses
were a direct result of the  competitive  nature of the industry and the need to
give retailers additional discounts and coop advertising fees. The Company plans
to make dramatic reductions in travel,  trade show, and all advertising expenses
in fiscal year 2000.

                                       17
<PAGE>
OFFICE & ADMINISTRATION

The Company's  office and  administrative  expenses showed a small increase from
approximately  $1,705,000  in the year  ended  April 30,  1998 to  approximately
$1,760,000 in the year ended April 30, 1999, or approximately a 3% increase.  As
a percentage of net sales,  office and administrative  expenses were 36% for the
year  ended  April  30,  1998 and 51% for the  year  ended  April  30,  1999.  A
significant portion of the increase in office and administrative expenses were a
result of employee  turnover and the need to hire temporary office and warehouse
help at greater cost.

RESEARCH & DEVELOPMENT

Expenditures for research and development  showed a decrease from  approximately
$318,000 in the year ended April 30, 1998, to approximately  $53,000 in the year
ended April 30, 1999 or  approximately  a 83%  reduction.  During the year ended
April 30, 1998 and April 30, 1999 Management  elected to expense the entire cost
of research and development expenditures as incurred. The Company's expenditures
for  research  and  development  vary from period to period  depending  upon the
number of new products under  development  and the stage of the  development and
vary as a percentage of sales depending upon sales achieved in that period.

CONSULTING FEES

Expenditures  for consulting fees decreased from  approximately  $120,000 in the
year ended  April 30, 1998 to $0 for the year ended  April 30,  1999,  or a 100%
reduction.  The Company has been able to rely upon staff for services which were
formerly contracted to outside sources.

NET LOSS

As a result of the factors  described  above, the Company's loss from operations
increased  from  approximately  $2,086,000  in the year ended  April 30, 1998 to
approximately  $3,256,000  in the year ended April 30,  1999.  The net loss from
1998  includes  $1,825,000  in  revenue  from a legal  settlement.  The  loss of
$3,256,000 is a direct result of a significant  reduction in sales and increased
expenses  from the  Company's UK  subsidiary  . The  Company's  total  operating
expenses decreased from approximately  $4,355,000 for the ten months ended April
30, 1998 to  approximately  $3,681,000  for the year ended April 30, 1999.  This
decrease,  $674,000  (16%),  was  accomplished  through  drastic  reductions  in
operating  costs in the US of  approximately  $1,091,000  for the current  year.
These  reductions  were offset by  increased  expenses by the UK  subsidiary  of
approximately $417,000.

Over the past year Management has spent an inordinate  amount of time and effort
in  addressing  administrative  issues and legal matters which are now resolved.
Future  results  will benefit  from a dedicated  focus on sales and  controlling
expenses, to maximize profitability and return on capital employed.

NET LOSS PER SHARE

Net loss per share  increased  from $1.61 for the year ended  April 30,  1998 to
$2.10 for the year ended April 30,  1999.  The  increase in the net loss for the
year ended April 30, 1999 represents an increase of 30%.

LIQUIDITY & CAPITAL RESOURCES

The Company's working capital decreased from $2,062,000 for the year ended April
30, 1998 to deficit of $390,744 for the year ended April 30, 1999. This decrease
is due directly to the Company's net loss for the year ended April 30, 1999. The
Company is required to pay the costs of  stocking  inventory  before the Company
receives  orders  and  payment  from its  customers.  Typically,  the  Company's
customers do not pay the Company for its products  until  approximately  60 days
following delivery and billing. As a result, the receipt of cash from operations
typically  lags  substantially  behind the payment of the costs for purchase and
delivery  of the  Company's  products.  The  Company  has been unable to attract
additional  sources of capital due to it's de-listing and must rely on factoring
of it's  accounts  receivable  which  dramatically  increase  costs and  reduces
working capital.

                                       18
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to the  financial  statements,  the notes  thereto and reports
thereon,  commencing  at page 23 of this  report,  which  financial  statements,
report, notes and data are incorporated herein by reference.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     Not applicable.

                                    PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT; COMPLIANCE WITH
        SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Directors and Executive Officers

The following table sets forth information  concerning each of the directors and
executive officers of the Company:

NAME                          AGE         POSITION
----                          ---         --------
James L. Copland               49         President, Treasurer, Chairman of
                                          the Board, and Chief Executive Officer
Catherine Copland              50         Secretary, Director
Steve Deckrow                  53         Director
Greg Struthers                 45         Director

James L. Copland has served as President,  Treasurer,  and Chairman of the Board
since its  inception.  From February  until May 1993, Mr. Copland served as Vice
President of Sales and  Marketing  for North and South  America for Aztech Labs,
Inc., a  manufacturer  and marketer of multimedia  sound cards.  From 1990 until
1992, Mr. Copland served as Vice President, Sales of Bondwell Industrial,  Inc.,
a manufacturer and distributor of notebook  computers and joy sticks.  From 1986
until 1989, Mr.  Copland  served as President for North  American  Operations of
Laser Friendly, US, and from 1984 until 1986 he served as Vice President,  Sales
and Marketing,  of Atari (U.S.)  Corporation.  From 1982 until 1984, Mr. Copland
served as General Sales and Marketing Manager of Commodore Computers, a Canadian
company. Mr. Copland is the husband of Catherine Copland.

Catherine  Copland has served as a director of the Company since  December 1994,
as  Assistant  Secretary  since April 1995,  and as Manager of Customer  Service
since  January 1995 and as secretary  since January  1997.  Prior to this,  Mrs.
Copland  has  held  various  part-time  administrative  positions  with Sun Life
Insurance Company of Canada,  Munich  reinsurance  Company of Canada, and Pantek
(US) Corp. Mrs. Copland is the wife of James L. Copland.

Steve Deckrow has been a director of the Company since September 1997. From 1989
until 1992,  Mr. Deckrow served as President for the publicly and privately held
LAN VAR Systems Integration Company. From 1992 until 1994, Mr. Deckrow served as
Vice  President of Sales and Marketing for Next Link LLC., a  telecommunications
company that provides client/server  computing and systems integration services.
Mr. Deckrow is presently an independent  consultant,  assisting companies in the
launch of  Internet  services  designed  to link  buyers  with  sellers in local
markets through an on-line business/residential  listings and integrated mapping
directory services.

Gregory  Struthers has been a director of the Company  since  January 1999.  Mr.
Struthers  has served as Executive  Vice  President of the Company since January
1999. Mr. Struthers served as Director of Asian  Operations,  based in Asia, for
the Company from January 1997 to January 1999.  From 1991 to 1996 Mr.  Struthers
served as Vice  President of Operations for Lee Data.  Mr.  Struthers  served as
Director of Quality Assurance from 1987 to 1990.

                                       19
<PAGE>
Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section  16(a) of the  Securities  Exchange Act of 1934  requires the  Company's
directors,  officers, and persons who own more than 10% of a registered class of
the  Company's  equity  securities  to file reports of ownership  and changes in
ownership with the Securities and Exchange Commission.  Directors,  officers and
greater than 10% shareholders are required to furnish the Company with copies of
all Section 16(a) forms they file.

The Company  believes that each person who, at any time during such fiscal year,
was a director,  officer or  beneficial  owner of more than 10% of the Company's
Common Stock  complied  with all Section 16(a) filing  requirements  during such
fiscal year.

ITEM 10. EXECUTIVE COMPENSATION

                           Summary Compensation Table

The following  table sets forth all  compensation  earned by the Company's Chief
Executive  Officer (the ("Named  Officer") for services  rendered to the Company
during the two preceding fiscal years. No other executive officer of the Company
earned more than $90,000 in the prior fiscal years.

                                                     FISCAL           ANNUAL
NAME AND PRINCIPAL POSITION                           YEAR         COMPENSATION
---------------------------                           ----         ------------
James L. Copland                                      1999           $150,000
President, Treasurer,                                 1998           $276,500(1)
Chairman of the Board, and
Chief Executive Officer

Thomas Bednarik                                       1997           $150,000
Former Chief Executive Officer
and Director(2)

(1)  Includes $150,000 paid for return of stock.
(2)  Thomas Bednarik  resigned as Director and Chief Executive Officer effective
     July 18, 1997.

                                       20
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following  table sets forth certain  information  with respect to beneficial
ownership  of the Common  Stock as of November 20, 1997 by (i) each person known
by the  Company  to be the  beneficial  owner of more than five  percent  of the
Common  Stock,  (ii) each  director  of the  Company,  and  (iii) all  executive
officers and directors of the Company as a group.

                                        NUMBER OF SHARES
         NAME AND ADDRESS             BENEFICIALLY OWNED(1)  PERCENT OF TOTAL(1)
         ----------------             ---------------------  -------------------
James L. and Catherine Copland(2)(3)       1,914,000(3)             40.6%

Directors and key employees as a
group (four persons)(2)(3)                 2,256,777(3)             47.7%

* Less than 1% of the outstanding Common Stock

(1)  In calculating  percentage ownership,  all shares of Common Stock which the
     named  shareholder  has the right to acquire upon exercise of stock options
     are deemed to be outstanding for the purpose of computing the percentage of
     Common  Stock  owned  by  such  shareholder,  but  are  not  deemed  to  be
     outstanding  for the purpose of computing  the  percentage  of Common Stock
     owned by any other shareholder. Percentages may be rounded.

(2)  Each of such  persons  may be  reached  through  the  Company  at 7625 east
     Redfield Road, Suite # 200 Scottsdale, Arizona 85260.

(3)  Includes common stock owned and stock options.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

In February 1995,  James L. Copland and Catherine  Copland were granted  250,000
options and 50,000 options, respectively, under the Company's Stock Option Plan.

The Company  believes  that all of the foregoing  transactions  were on terms no
less favorable to the Company than could have been obtained from unrelated third
parties. The Company intends to continue to require that any future transactions
with  affiliated  parties be on such  terms and  approved  by a majority  of the
disinterested directors.

                                       21
<PAGE>
                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits

EXHIBIT
NUMBER                               EXHIBIT
------                               -------
1.3(1)    Form of Underwriter's Warrants
1.4(1)    Form of Warrant Agreement
3.1(1)    Restated Articles of Incorporation
3.2(1)    Bylaws
4.1(2)    Form of Certificate evidencing shares of Common Stock
4.2(2)    Form of Certificate evidencing Stock Purchase Warrant
4.3(2)    Certificate of Designation of Series A Preferred Stock
4.4(2)    Form of Certificate evidencing Series A Preferred Stock
10.3      Form of Employment  Agreement between the Company and James L. Copland
          dated July 1, 1997
21.0(2)   Subsidiaries of the Registrant
27.0      Financial Data Schedule
(1)       Incorporated by reference to the Registrant's  Registration  Statement
          on Form SB-2 (Registration No. 33-96812 LA).
(2)       Incorporated by reference to the Registrant's  Registration  Statement
          on Form SB-2 filed with the U.S. Securities and Exchange Commission on
          or about September 23, 1996.

(b)  Reports on Form 8-K;

     On October 9, 1997, the  Registrant  filed with the Securities and Exchange
     Commission a Report on Form 8-K dated  September 17, 1997,  which  reported
     the resignation of the Company's certified public accountants, Toback CPAs,
     P.C. and the resignation of the Company's Chief Executive  Officer,  Thomas
     Bednarik.

     On April 30, 1999,  the  registrant  filed with the Securities and Exchange
     Commission  a Report on Form 8-K dated  April 30, 1999 which  reported  the
     engagement of King, Weber & Associates, P.C. as its new audit firm.

     On April 23, 1999,  the  registrant  filed with the Securities and Exchange
     Commission  a report on Form 8-K,  dated April 23, 1999,  which  reported a
     reverse  stock split in a ratio of one (1) new share for  eighteen  (18) of
     its shares of common stock.

                                       22
<PAGE>
                                   SIGNATURES

In accordance  with Section 13 or 15(d) of the Securities  Exchange Act of 1934,
the  registrant  has duly  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                        SC&T INTERNATIONAL, INC.

Date: August 11, 1999                   /s/ JAMES J. COPLAND
                                        ----------------------------------------
                                        James L. Copland, Chairman of the Board,
                                        President, Treasurer, Chief Executive
                                        Officer, and Director

In accordance  with the  Securities  Exchange Act of 1934,  this report has been
signed below by the  following  persons on behalf of the  registrant  and in the
capacities and on the date indicated.

SIGNATURE                             TITLE                          DATE
---------                             -----                          ----


/s/ James L. Copland        President, Treasurer, Chief          August 11, 1999
-------------------------   Executive Officer, and Director
James L. Copland


/s/ Catherine Copland       Assistant Secretary and Director     August 11, 1999
-------------------------
Catherine Copland


/s/ Greg Struthers          Director                             August 11, 1999
-------------------------
Greg Struthers


/s/ Steve Decrow            Director                             August 11, 1999
-------------------------
Steve Decrow

                                       23
<PAGE>
                            SC&T INTERNATIONAL, INC.

                     CONSOLIDATED FINANCIAL STATEMENTS AS OF
                                 APRIL 30, 1999
                        AND INDEPENDENT AUDITORS' REPORT

                                       24
<PAGE>
SC&T INTERNATIONAL, INC.

TABLE OF CONTENTS

                                                                            PAGE

INDEPENDENT AUDITORS' REPORT                                                  26

CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
  APRIL 30, 1999 AND TEN MONTHS ENDED APRIL 30, 1998:

  Consolidated Balance Sheet                                                  28

  Consolidated Statements of Operations                                       28

  Consolidated Statements of Stockholder's Equity                             30

  Consolidated Statements of Cash Flows                                       31

NOTES TO FINANCIAL STATEMENTS                                                 33

                                       25
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
SC&T International, Inc.

We  have  audited  the  accompanying   consolidated  statements  of  operations,
comprehensive income, stockholders' equity and cash flows of SC&T International,
Inc.  and   subsidiaries  for  the  ten  months  ended  April  30,  1998.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit. We did not audit the financial statements of SC&T
Europe,  NV  (Belgium)  and SC&T  Europe,  LTD  (United  Kingdom),  wholly-owned
subsidiaries,  which statements reflect total revenues of $2,343,000 for the ten
months then ended. Those statements were audited by other auditors whose reports
were  furnished to us, and in our opinion,  insofar as they relate to the amount
included for SC&T Europe, NV and SC&T Europe, LTD, is based solely on the report
of other auditors.  The auditors of SC&T Europe LTD issued an adverse opinion on
the subsidiary's  financial  statements due to uncertainties about the Company's
ability to provide the necessary financial support to the subsidiary.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance  about  whether  the  consolidated  financial  statements  are free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation. We believe that our audit and the report of other auditors provide
a reasonable basis for our opinion.

In our  opinion,  based on our  audit  and the  report  of other  auditors,  the
consolidated  financial  statements  referred  to above  present  fairly  in all
material respects, the consolidated results of operations and cash flows of SC&T
International,  Inc. and subsidiaries for the ten months ended April 30, 1998 in
conformity with generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern.  As discussed in the notes to
the financial  statements,  the Company has suffered losses from operations that
raised  substantial  doubt about its  ability to  continue  as a going  concern.
Management's  plans with regard to these  matters are  discussed in the notes to
the  financial   statements.   The  financial  statements  do  not  include  any
adjustments that might result from the outcome of this uncertainty.


Evers & Company, Ltd.
Phoenix, Arizona
August 6, 1998

                                       26
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors of
SC&T International, Inc.
Scottsdale, Arizona:

We have audited the consolidated  balance sheet of SC&T International,  Inc. and
subsidiaries (the "Company"),  as of April 30, 1999 and the related consolidated
statements of operations,  comprehensive  income,  stockholders' equity and cash
flows for the year then ended. These consolidated  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements based on our audit. We did
not audit the  financial  statements  of SC&T  Europe  Limited,  a wholly  owned
subsidiary,  which statements reflect total assets of $1,280,739 as of March 31,
1999 and total revenues of $1,372,134 for the year then ended.  Those statements
were audited by other  auditors  whose report has been  furnished to us, and our
opinion,  insofar as it relates to the amounts included for SC&T Europe Limited,
is based  solely on the  report of the other  auditors.  The  auditors  for SC&T
Europe  Limited  issued an adverse  opinion due to  uncertainties  regarding the
subsidiary's  ability to continue as a going  concern and lack of evidence  that
the parent company will provide sufficient financial support.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance  about  whether  the  consolidated  financial  statements  are free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audit and the  report of the other  auditors
provide a reasonable basis for our opinion.

In our  opinion,  based on our audit and the report of the other  auditors,  the
consolidated  financial  statements  referred to above  present  fairly,  in all
material respects,  the consolidated  financial position of SC&T  International,
Inc. and subsidiaries as of April 30, 1999 and the consolidated results of their
operations  and their  cash  flows for the year then  ended in  conformity  with
generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company  will  continue as a going  concern.  The Company has a working
capital  deficit of $390,744 at April 30, 1999 and has  experienced  significant
operating  losses with  uncertain  cash flow to service trade debt and operating
expenses.  These factors raise  substantial doubt about the Company's ability to
continue as a going concern. Management's plans with regard to these matters are
discussed in Note 1. The  financial  statements  do not include any  adjustments
relating to the  recoverability  and classification of asset carrying amounts or
the amount and  classification  of  liabilities  that  might  result  should the
Company be unable to continue as a going concern.


KING, WEBER & ASSOCIATES, P.C.
Tempe, Arizona
July 20, 1999

                                       27
<PAGE>
SC&T INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEET
APRIL 30, 1999
--------------------------------------------------------------------------------

ASSETS

CURRENT ASSETS
  Cash and cash equivalents                                        $    207,198
  Accounts receivable (net of $339,453 allowance)                       400,100
  Inventories                                                         1,413,069
  Prepaid expenses and other assets                                     189,759
                                                                   ------------
    Total current assets                                              2,210,126

PROPERTY AND EQUIPMENT, net                                             494,495

OTHER ASSETS                                                             23,471
                                                                   ------------
TOTAL ASSETS                                                       $  2,728,092
                                                                   ============
LIABILITIES AND STOCKHOLDERS' EQUITY:

CURRENT LIABILITIES:
  Accounts payable                                                 $  2,265,871
  Accrued liabilities                                                   257,795
  Advances from factor                                                   68,737
  Capital lease obligations - current portion                             8,467
                                                                   ------------
    Total current liabilities                                         2,600,870

CAPITAL LEASE OBLIGATIONS - long-term portion                            15,327
                                                                   ------------
    Total liabilities                                                 2,616,197
                                                                   ------------
STOCKHOLDERS' EQUITY:
  Preferred stock, $.0001 par value, 3,000,000
    shares authorized, none issued
  Common stock, $.01 par value, 33,332,747
    shares authorized, 3,351,064 issued and outstanding                  33,512
  Paid in capital                                                    15,478,055
  Currency translation                                                    2,527
  Accumulated deficit                                               (15,402,199)
                                                                   ------------
   Total stockholders' equity                                           111,895
                                                                   ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $  2,728,092
                                                                   ============

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       28
<PAGE>
SC&T INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED APRIL 30, 1999 AND TEN MONTHS ENDED APRIL 30, 1998
--------------------------------------------------------------------------------

                                                        1999           1998
                                                     -----------    -----------
NET SALES                                            $ 3,405,313    $ 4,733,558

COST OF SALES
  Cost of sales                                        3,039,341      3,424,081
  Inventory adjustment to net realizable value                --        834,900
                                                     -----------    -----------
                                                       3,039,341      4,258,981

  Gross profit                                           365,972        474,577
                                                     -----------    -----------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
  Salaries and benefits expense                          724,519      1,140,345
  Selling and promotion expense                        1,144,462      1,072,065
  Office and administrative expense                    1,759,036      1,705,369
  Research and development expense                        53,226        317,593
  Consulting fees                                             --        120,005
                                                     -----------    -----------
    Total selling, general and
      administrative expenses                          3,681,243      4,355,377
                                                     -----------    -----------

LOSS FROM OPERATIONS                                  (3,315,271)    (3,880,800)
                                                     -----------    -----------
OTHER (INCOME) AND EXPENSES
  Interest income                                         (3,915)       (17,125)
  Interest expense and factoring charges                 198,881         47,081
  Royalty income                                        (144,065)            --
  Gain on disposition of equipment and
    sale lease back                                     (110,227)            --
  Gain from legal settlement                                  --     (1,825,000)
                                                     -----------    -----------
    Total other expenses                                 (59,326)    (1,795,044)
                                                     -----------    -----------
NET LOSS                                             $(3,255,945)   $(2,085,756)
                                                     ===========    ===========
NET LOSS PER COMMON SHARE
  Basic                                              $     (2.10)   $     (1.61)
                                                     ===========    ===========
  Diluted                                            $     (2.10)   $     (1.61)
                                                     ===========    ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
  Basic                                                1,554,018      1,296,972
                                                     ===========    ===========
  Diluted                                              1,554,018      1,296,972
                                                     ===========    ===========

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       29
<PAGE>
SC&T INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED APRIL 30, 1999 AND TEN MONTHS ENDED APRIL 30, 1998
--------------------------------------------------------------------------------

                                                      1999             1998
                                                   -----------      -----------
NET LOSS                                           $(3,255,945)     $(2,085,756)

OTHER COMPREHENSIVE INCOME (LOSS)

  Foreign currency translation adjustments              57,240           19,538
                                                   -----------      -----------
    Total Other Comprehensive Income                    57,240           19,538
                                                   -----------      -----------
COMPREHENSIVE INCOME (LOSS)                        $(3,198,705)     $(2,066,218)
                                                   ===========      ===========

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       30
<PAGE>
SC&T INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED APRIL 30, 1999 AND TEN MONTHS ENDED APRIL 30, 1998
--------------------------------------------------------------------------------


<TABLE>
<CAPTION>
                                             COMMON STOCK                  PREFERRED STOCK            ADDITIONAL
                                     ----------------------------    ----------------------------      PAID-IN
                                        SHARES          AMOUNT          SHARES          AMOUNT         CAPITAL
                                     ------------    ------------    ------------    ------------    ------------
<S>                                  <C>             <C>             <C>             <C>             <C>
BALANCE JULY 1, 1997                   23,135,273    $    231,353             718    $          7    $ 14,959,622

  Conversion of preferred stock         5,450,000          54,500            (545)             (5)        (54,495)

  Conversion of president's common
    stock to Series B preferred        (1,648,444)        (16,484)             15       1,500,000      (1,633,516)

  Cancellation of treasury stock       (3,783,145)        (37,831)                                          8,416

  Currency translation

  Net loss
                                     ------------    ------------    ------------    ------------    ------------
BALANCE APRIL 30, 1998                 23,153,684    $    231,538             188    $  1,500,002    $ 13,280,027

  Conversion of Series A preferred      2,964,584          29,646            (173)             (2)        (29,644)

  Conversion of Series B preferred     18,000,000         180,000             (15)     (1,500,000)      1,320,000

  Reverse stock split (1 for 18)      (41,667,204)       (416,672)                                        416,672

  Stock issued for cash                   900,000           9,000                                         491,000

  Currency translation

    Net loss
                                     ------------    ------------    ------------    ------------    ------------
BALANCE APRIL 30, 1999                  3,351,064    $     33,512               0    $         --    $ 15,478,055
                                     ============    ============    ============    ============    ============

<CAPTION>
                                            TREASURY STOCK
                                     ----------------------------      CURRENCY      ACCUMULATED
                                        SHARES          AMOUNT       TRANSLATION       DEFICIT          TOTAL
                                     ------------    ------------    ------------    ------------    ------------
<S>                                  <C>             <C>             <C>             <C>             <C>
BALANCE JULY 1, 1997                     (200,000)   $    (29,415)   $    (74,251)   $(10,060,498)   $  5,026,818

  Conversion of preferred stock                --

  Conversion of president's common
    stock to Series B preferred                                                                          (150,000)

  Cancellation of treasury stock          200,000          29,415                                              --

  Currency translation                                                     19,538                          19,538

  Net loss                                                                             (2,085,756)     (2,085,756)
                                     ------------    ------------    ------------    ------------    ------------
BALANCE APRIL 30, 1998                          0    $         --    $    (54,713)   $(12,146,254)   $  2,810,600

  Conversion of Series A preferred                                                                             --

  Conversion of Series B preferred                                                                             --

  Reverse stock split (1 for 18)                                                                               --

  Stock issued for cash                                                                                   500,000

  Currency translation                                                     57,240                          57,240

    Net loss                                                                           (3,255,945)     (3,255,945)
                                     ------------    ------------    ------------    ------------    ------------
BALANCE APRIL 30, 1999                          0    $         --    $      2,527    $(15,402,199)   $    111,895
                                     ============    ============    ============    ============    ============
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       31
<PAGE>
SC&T INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEAR ENDED APRIL 30, 1999 AND TEN MONTHS ENDED APRIL 30, 1998
--------------------------------------------------------------------------------

                                                        1999           1998
                                                     -----------    -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                           $(3,255,945)   $(2,085,756)
  Adjustments to reconcile net loss to net cash
    provided by operating activities:
  Depreciation and amortization                          216,048        141,055
  Amortization of deferred gain on sale leaseback       (145,864)       (13,252)
  Loss on disposal of property and equipment               6,228
  Litigation settlement expense Changes in assets
    and liabilities:
    Accounts receivable                                  354,808        101,400
    Inventories                                          663,836        417,884
    Prepaid expenses and other current assets            (59,325)         2,690
    Other assets                                         141,317       (150,342)
    Accounts payable                                     959,690        428,052
    Accrued liabilities                                   68,853        (12,830)
                                                     -----------    -----------
      Net cash (used in) provided by
        operating activities                          (1,050,354)    (1,171,099)
                                                     -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Proceeds from sale leaseback of building                    --      1,408,577
  Proceeds from sale of property and equipment            13,486
  Purchase of property and equipment                     (60,591)      (412,121)
                                                     -----------    -----------
      Net cash (used in) provided by
        investing activities                             (47,105)       996,456
                                                     -----------    -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Cash payment for stock acquired from president              --       (150,000)
  Currency translation                                        --         19,538
  Payment of capital lease obligations                   (10,330)        (8,225)
  Proceeds from issuance of common stock                 500,000
  Advances from (repayments to) factor                   (47,515)       116,252
                                                     -----------    -----------
      Net cash provided by (used in)
        financing activities                             442,155        (22,435)
                                                     -----------    -----------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                      942             --

DECREASE IN CASH AND EQUIVALENTS                        (654,362)      (197,078)

CASH AND EQUIVALENTS, BEGINNING OF PERIOD                861,560      1,058,638
                                                     -----------    -----------
CASH AND EQUIVALENTS, END OF PERIOD                  $   207,198    $   861,560
                                                     ===========    ===========

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       32
<PAGE>
SC&T INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE
YEAR ENDED APRIL 30, 1999 AND TEN MONTHS ENDED APRIL 30, 1998

                                                            1999         1998
                                                          ---------    ---------
SUPPLEMENTAL CASH FLOW INFORMATION:
  Interest paid                                           $ 196,400    $  47,081
                                                          =========    =========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:

  Purchase of equipment under capital lease                            $  11,303
                                                                       =========

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       33
<PAGE>
SC&T INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEAR ENDED APRIL 30, 1999 AND TEN MONTHS ENDED APRIL 30, 1998

1.   ORGANIZATION AND BASIS OF PRESENTATION

     SC&T International, Inc. (the "Company") was formed in 1993 for the purpose
     of developing  and  marketing  accessory  and  peripheral  products for the
     computer and video game  industries.  The Company's  primary  product line,
     steering   wheels  and  foot  controls  for  racing  games,   use  infrared
     connections,  eliminating  the need for computer cable hook-up  directly to
     the personal computers. Its products are compatible with SEGA, Nintendo and
     Sony  Playstation  games. The Company also markets audio speakers for PC's.
     The Company's customers include many of the major electronics  retailers in
     the United  States and  overseas.  A  substantial  portion of the Company's
     revenue is generated  internationally.  It has wholly owned subsidiaries in
     the United Kingdom and Hong Kong.

     The accompanying financial statements have been prepared on a going concern
     basis, which contemplates the realization of assets and the satisfaction of
     liabilities  in  the  normal  course  of  business.  As  reflected  in  the
     accompanying  balance sheet,  the Company had negative  working  capital of
     $390,744  at April 30,  1999 and  continues  to suffer  material  operating
     losses.  These factors raise  substantial doubt about the Company's ability
     to continue as a going concern. The financial statements do not include any
     adjustments relating to the recoverability and classification of assets and
     liabilities  that  might be  necessary  should  the  Company  be  unable to
     continue as a going concern. The Company's  continuation as a going concern
     is  dependent  upon its  ability  to  generate  sufficient  cash  flow from
     profitable  operations or raise adequate capital to meet its obligations on
     a timely basis.  The Company is  attempting to raise equity  capital and is
     pursuing  other  operating  alliances  to  enhance  its  sales  volume  and
     profitability. However, there can be no assurances that the Company will be
     successful with these attempts.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     CONSOLIDATION - The consolidated  financial statements include the accounts
     and   activities  of  SC&T   International,   Inc.  and  its  wholly  owned
     subsidiaries,  SC&T Europe,  Limited (United Kingdom),  SC&T Asia,  Limited
     (Hong Kong) and SC&T Europe,  NV  (Belgium),  SC&T  America,  Inc. and SC&T
     Racing   Enterprises,   Limited.   SC&T  America,   Inc.  and  SC&T  Racing
     Enterprises,  Limited  are  dormant  entities  with no  material  assets or
     liabilities.  SC&T Europe,  NV wound up its operations during the ten month
     period  ended  April 30, 1998 and the  remaining  net assets of the Belgium
     entity were  transferred to SC&T Europe,  Limited on September 1, 1998. All
     significant intercompany  transactions and balances have been eliminated in
     consolidation.  SC&T  Europe,  Limited  has a fiscal  year end of March 31,
     1999. The effect of the one month intervening period is not material.

     CASH AND CASH EQUIVALENTS includes all short-term highly liquid investments
     that are readily  convertible  to known  amounts of cash and have  original
     maturities of three months or less.

     INVENTORIES  are  stated  at the  lower of cost  (first-in,  first-out)  or
     market. Allowances are made for returned inventory to reflect estimated net
     realizable value of those items.

     PROPERTY  AND  EQUIPMENT  are  recorded  at  cost  and   depreciated  on  a
     straight-line  basis over the estimated  useful lives of the assets ranging
     from 3 to 10  years.  Depreciation  expense  is not  recorded  for  tooling
     acquired and not yet been placed in service.

     REVENUE  RECOGNITION - The Company  recognizes  revenue when the product is
     shipped.  Products have warranties covering defects. Certain customers have
     arrangements  that  provide  the right to return  unsold  merchandise.  The
     Company provides an allowance to reflect  estimated returns of product from
     customers and warranty costs. The Company may also provide price protection
     to  certain  customers.  The  Company  records  the price  protection  as a
     reduction of revenue at the time of the price reduction.

                                       34
<PAGE>
RESEARCH AND DEVELOPMENT COSTS FOR NEW PRODUCTS ARE EXPENSED AS INCURRED.

ADVERTISING  COSTS,  WHICH INCLUDE THE COSTS OF SPONSORING  RACING  EVENTS,  ARE
EXPENSED AS INCURRED.  ADVERTISING EXPENSE FOR THE YEAR ENDED APRIL 30, 1999 AND
THE TEN MONTHS ENDED APRIL 30, 1998 WAS  APPROXIMATELY  $332,000  AND  $570,000,
RESPECTIVELY.

     INCOME  TAXES  - The  Company  provides  for  income  taxes  based  on  the
     provisions  of  Statement  of  Financial   Accounting  Standards  No.  109,
     ACCOUNTING  FOR INCOME  TAXES,  which among  other  things,  requires  that
     recognition  of deferred  income  taxes be measured  by the  provisions  of
     enacted tax laws in effect at the date of financial statements.

     FOREIGN  CURRENCY  TRANSLATION - The foreign  subsidiaries  maintain  their
     financial  statements in the local currencies which have been determined to
     be the functional currencies. Assets and liabilities denominated in foreign
     currencies are translated  into U.S.  dollars at the rates in effect at the
     balance sheet date.  Revenues and expenses are  translated at average rates
     for the year.  Related  translation  adjustments are reported as a separate
     component of stockholders' equity, whereas, gains and losses resulting from
     foreign currency transactions are included in the results of operations.

     FINANCIAL  INSTRUMENTS - Financial  instruments  consist primarily of cash,
     accounts  receivable,  and  obligations  under  accounts  payable,  accrued
     expenses, advances from factor, and capital lease instruments. The carrying
     amounts of cash, accounts  receivable,  accounts payable,  accrued expenses
     and  advances  from  factor  approximate  fair  value  because of the short
     maturity of those instruments.  The carrying value of the Company's capital
     lease  arrangements  approximates  fair value because the instruments  were
     valued at the retail cost of the equipment at the time the Company  entered
     into the arrangements.

     USE OF ESTIMATES - The  preparation  of financial  statements in conformity
     with generally accepted  accounting  principles requires management to make
     estimates and  assumptions  that affect the reported  amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the date
     of the  financial  statements  and the  reported  amounts of  revenues  and
     expenses  during the  reporting  period.  Actual  results could differ from
     those estimates.

     LOSS PER  SHARE - Basic  loss per  share is  computed  using  the  weighted
     average  number  of  shares of common  stock  outstanding  for the  period.
     Diluted  loss per share is computed  using the weighted  average  number of
     shares of common stock plus dilutive  potential  common shares  outstanding
     for the period.

                                       35
<PAGE>
3.   INVENTORIES

     Inventories consisted of the following at April 30, 1999:

     Finished goods                                                 $ 1,305,750
     Advances on purchases of inventory                                 138,747
     In-transit items                                                    73,568
     Allowance for obsolescence                                        (104,996)
                                                                    -----------
       Total inventory                                              $ 1,413,069
                                                                    ===========

     Advances on  purchases  of  inventory  are for  inventory  currently  being
     manufactured  or anticipated  to be  manufactured  in the near future.  The
     Company   relies  on  a  limited   number  of  suppliers  and  one  primary
     manufacturer  for  the  production  of  its  products.  Its  suppliers  and
     manufacturer are located in Hong Kong, China and Taiwan.

4.  PROPERTY AND EQUIPMENT

     Property and equipment consisted of the following at April 30, 1999:

     Office furniture and equipment                                    $ 294,448
     Tools, dies and molds                                               508,830
     Computer equipment                                                  168,881
     Warehouse equipment                                                  11,303
                                                                       ---------
     Total                                                               983,462
     Less accumulated depreciation and amortization                      488,967

     Property and equipment - net                                      $ 494,495
                                                                       =========

5.   ADVANCES FROM FACTOR

     In May  1998,  the  Company  changed  factors  which  resulted  in an early
     termination  penalty  of  $12,000 to the prior  factor.  The new  factoring
     arrangement  provided for a fee equal to 1.5% of all invoices factored plus
     interest equal to the bank's base rate plus 2% on all outstanding  balances
     advanced.  The factor assumed credit risk related to receivables  factored,
     however,  the  Company  was  responsible  for  all  customer  disputes  and
     counterclaims. The agreement was secured by accounts receivable, inventory,
     certain other assets of the Company and the personal  guarantees of certain
     officers.

     The Company  entered into an  agreement  with another new factor in October
     1998.  The  terms  of  the  agreement  provide  for  advances  up to 75% of
     receivables  factored and a 2% discount payable upon submission of invoices
     to factor. A discount fee of 10% per day up to 90 days is charged from date
     of advance  until  payment by  customer.  A 15% fee is charged for accounts
     unpaid  after 90 days.  Credit risk  remains  with the  Company  except for
     account  debtor  bankruptcy.  The  agreement  is  secured  by all  accounts
     receivable whether or not specifically purchased by the factor. The balance
     at April  30,  1999 of  $68,737  represents  funds  advanced  in  excess of
     customer payments  received by factor and allowance  reserve  maintained by
     factor.

6.   INCOME TAXES

     The Company  recognizes  deferred income taxes for the differences  between
     financial accounting and tax bases of assets and liabilities.  Income taxes
     for the  year  ended  and ten  months  ended  April  30,  1999,  and  1998,
     respectively, consisted of the following:

                                       36
<PAGE>
                                                       1999            1998
                                                    -----------     -----------
     Current tax provision (benefit)                $(1,370,442)    $(1,420,000)
     Deferred tax provision (benefit)                 1,370,442       1,420,000
                                                    -----------     -----------
     Total income tax provision (benefit)           $        -0-    $        -0-
                                                    ===========     ===========

     There was no deferred tax liability at April 30, 1999. There was a deferred
     tax asset of $6,570,441 at April 30, 1999, which consists of the following:

     Net operating loss carryforwards                               $ 6,342,345
     Allowance for doubtful accounts                                    135,781
     Accrued compensation                                                10,317
     Inventory reserves                                                  41,998
     Property and equipment                                              40,000
                                                                    -----------
       Subtotal                                                       6,570,441

     Valuation allowance                                             (6,570,441)
                                                                    -----------
       Total                                                        $        -0-
                                                                    ===========

     Deferred income taxes for the year ended April 30, 1999,  primarily  relate
     to temporary  differences  for the increase in the valuation  allowance for
     the  deferred   income  tax  asset  related  to  the  net  operating   loss
     carryforward  of $1,622,345  less reversal of temporary  differences in the
     allowances for doubtful accounts and inventory reserves of $251,904.

     The Company files a  consolidated  income tax return in the United  States.
     There is no effect of foreign  income taxes since the foreign  subsidiaries
     incurred  operating  losses for income tax purposes.  Any effect of foreign
     income taxes would be recognized in the U.S income tax return.

     Net operating loss  carryforwards  of $15,362,727  expire from 2010 through
     2018.

     A  reconciliation  for the differences  between the effective and statutory
     income tax rates is as follows:

                                                               1999
                                                    --------------------------
     Federal statutory rates                        $(1,107,021)           (34)%
     State income taxes - net of federal benefit       (260,476)            (8)%
     Valuation allowance for operating loss
       carryforwards                                  1,370,441             42 %
     Other                                               (2,944)            -- %
                                                    -----------    -----------
       Effective rate                               $        -0-            -0-%
                                                    ===========    ===========

7.   LEASES

     OPERATING LEASES

     The Company  leases its  facilities  and  certain  office  equipment  under
     long-term  operating leases that expire through February 2002. Rent expense
     under these  leases was  approximately  $256,000  and $216,000 for the year
     ended April 30, 1999 and ten months  ended  April 30,  1998,  respectively.
     Minimum annual lease payments under these agreements are as follows:

     Years ended April 30:
     ---------------------
             2000                                                      $ 211,071
             2001                                                        100,389
             2002                                                         73,000
                                                                       ---------
             Total                                                     $ 384,460
                                                                       =========

                                       37
<PAGE>
     On July 1,  1997,  the  Company  completed  a  sales-leaseback  transaction
     involving the land and building on which the Company's former  headquarters
     were located. The sales price of the property was $1,500,000 which resulted
     in a gain of  approximately  $159,000 that was being deferred and amortized
     over the lease term.  The leaseback  was for a ten-year  period and granted
     the  Company  the right of first  refusal to  purchase  the  building.  The
     Company terminated the lease in February 1999, in an agreed-upon settlement
     with the landlord and moved to new  headquarters  under a three year lease.
     The remaining unamortized gain of $145,864 was recognized in 1999 offset by
     the loss of the security deposits of approximately $38,000.

     CAPITAL LEASES

     The Company  leases office and  warehouse  equipment  under capital  leases
     expiring  through 2001.  Minimum  required  lease  payments under the lease
     agreements for the years ending April 30 are as follows:

          2000                                                         $  15,333
          2001                                                            11,643
                                                                       ---------
     Total future minimum lease payments                                  26,976
     Less amount representing interest                                     3,182
                                                                       ---------

     Total future minimum lease payments-net                              23,794
     Current portion                                                       8,467
                                                                       ---------
     Long-term portion                                                 $  15,327
                                                                       =========

     Assets  capitalized  under the capital  leases  included  in  property  and
     equipment  balances  totaled  $26,104 (net of accumulated  amortization  of
     $17,030) at April 30 1999.

8.   LOSS PER SHARE

     Net loss per share is  calculated  using  the  weighted  average  number of
     shares of common stock outstanding during the year. The Company has adopted
     SFAS No. 128 Earnings Per Share.

<TABLE>
<CAPTION>
                                                                                                Per
                                           Income/Loss                    Shares               Share
                                    --------------------------    ---------------------   -----------------
                                       1999           1998           1999        1998       1999     1998
                                    -----------    -----------    ---------   ---------   -------   -------
<S>                                 <C>            <C>            <C>         <C>         <C>       <C>
Net (Loss)                          $(3,255,945)   $(2,085,756)

BASIC (LOSS) EARNINGS PER SHARE:
  Income available to Common
    Shareholders                    $(3,255,945)   $(2,085,756)   1,554,018   1,296,972   $ (2.10)  $ (1.61)

EFFECT OF DILUTIVE SECURITIES            N/A            N/A

DILUTED (LOSS) EARNINGS PER SHARE   $(3,255,945)   $(2,085,756)   1,554,018   1,296,972   $ (2.10)  $ (1.61)
</TABLE>

     Common   equivalent   shares  of  1,061,444   stock  options  and  warrants
     outstanding  at April 30, 1999, are excluded from the  computation  because
     the effect of inclusion  would be  anti-dilutive.  Subsequent  to April 30,
     1999, 1,200,000 shares of common stock were issued.

                                       38
<PAGE>
9.   STOCKHOLDERS' EQUITY

     Preferred Stock

     At April 30, 1999 all issued shares of preferred  stock had been  converted
     to common stock. During the year ended April 30, 1999, 173 shares of Series
     A  preferred  were  converted  to 29,646  common  and 15 shares of Series B
     preferred were converted to 180,000 common shares.

     Common Stock

     During the year ended April 30,  1999,  the  Company's  Board of  Directors
     approved  a  reverse  stock  split of 1 for 18.  All share  amounts  in the
     accompanying  financial  statements  have been  retroactively  restated  to
     reflect the effect of the split.

     Stock Options and Warrants

     The Company  issues stock options from time to time to  executives  and key
     employees.  The  Company  has a  qualified  stock  option  plan for its key
     employees, consultants and independent contractors. The Company has adopted
     the  disclosure-only   provisions  of  Statement  of  Financial  Accounting
     Standards No. 123, "Accounting for Stock-Based Compensation," and continues
     to account for stock based  compensation  using the intrinsic  value method
     prescribed by Accounting  Principles Board Opinion No. 25,  "Accounting for
     Stock Issued to  Employees".  Accordingly,  no  compensation  cost has been
     recognized for the stock options granted.  There were no options granted or
     vested in the year ended April 30, 1999.

                                       39
<PAGE>
     A summary of activity  for the  Company's  stock  options  and  warrants is
     presented below:

                                                                        EXERCISE
                                                         OPTIONS          PRICE
                                                         -------          -----
     Options outstanding at July 1, 1997                  54,167          $0.06
     Granted                                              15,000          $0.06
     Exercised                                                 0
     Terminated/Expired                                   (3,611)         $0.06
                                                         -------
     Options outstanding at April 30, 1998                65,556          $0.06

     Granted                                                   0          $0.06
     Exercised                                                 0
     Terminated/Expired                                   38,889          $0.06
                                                         =======
     Options outstanding at April 30, 1999                26,667          $0.06
                                                         =======

     The option  amounts and exercise  prices have been  adjusted to reflect the
     stock split that occurred in the year ended April 30, 1999.

     The  Company  has common  stock  warrants  outstanding  that were issued in
     connection with certain equity raises.

                                           WARRANTS     PRICE       EXPIRATION
                                           --------     -----       ----------
     Warrants issued in the
     initial public offering                  6,027     $ 0.43       June 2001
                                             28,750     $ 0.35     December 2000

     Issued in private placement in
     the year ended April 30, 1999          600,000     $ 1.50        May 1999
                                            200,001     $ 3.00       June 1999
                                            200,001     $ 5.00      August 1999

10.  RELATED PARTY TRANSACTIONS

     During the ten months ended April 30, 1998, the Board of Directors  forgave
     a receivable of approximately $38,000 from the Company's president.

     On July  1,  1997  the  Company  entered  into a new  five-year  employment
     agreement with its Chief Executive  Officer.  The agreement  provides for a
     base salary and certain  benefits plus an incentive  bonus to be determined
     at the sole  discretion of the Board of Directors.  As part the  agreement,
     the officer and his wife  received cash  payments for  accumulated  accrued
     vacation and  forgiveness  of all amounts owed by them to the Company.  The
     vacation  and  indebtedness   were   approximately   $60,000  and  $38,000,
     respectively.  The agreement  also contains  termination  provisions  and a
     one-year non-competition clause.

                                       40
<PAGE>
11.  CONCENTRATION OF CREDIT RISK

     Financial   instruments   that   potentially   subject   the   Company   to
     concentrations  of  credit  risk are  primarily  accounts  receivable.  The
     accounts receivable balance at April 30, 1999 is comprised of accounts with
     three  customers  in the U.S.  totaling a net balance of $77,000 and of the
     net balance in the U.K. of $323,000, approximately $144,000 is due from two
     customers.

     Three  customers were  responsible  for 9% to 11% each of the Company's net
     revenue for the year ended April 30,  1999.  The total sales to those three
     customers for the year ended April 30, 1999 represented  approximately  30%
     of the net revenue for the year ended April 30, 1999.

     The Company acquires  substantially all of its major product lines from one
     Asian manufacturer.  Certain components are acquired by the Company for the
     manufacturer  and those  components can be obtained from numerous  sources.
     The Company also licenses  certain  technology for one of its product lines
     from one licensor.

12.  LEGAL SETTLEMENT

     In May 1995,  the Company  filed suit against Maxi Switch and its corporate
     affiliates for  misappropriation of trade secrets and breach of contract in
     connection with the Company's multimedia keyboard technology.  In May 1997,
     a jury awarded the Company $3,000,000 plus $125,000 in attorneys' fees. The
     defendants  had filed  counterclaims  for  defamation,  but the jury denied
     those counterclaims in their entirety. The defendants filed a timely Notice
     of Appeal in October  1997.  However,  in April  1998,  Maxi Switch and the
     Company agreed to settle the claim for $1,825,000.  The gain is recorded in
     the 1998 financial statements.

13.  COMMITMENTS AND CONTINGENCIES

     The Company has entered  into royalty and license  agreements  that require
     minimum payments based on sales. If the Company does not meet those minimum
     sales amounts in a specified period of time, the minimum royalty or license
     fee must  still be paid.  At April  30,  1999,  the  Company  had a minimum
     license fee to one licensor of $373,000  which is to be paid as related the
     products are sold.

     The Company wrote off a debt of $140,000 to a licensor of  technology  used
     in some of the Company's  products.  Management  believes that the licensor
     illegally  licensed  technology  that it did not own.  Management  does not
     believe  that  licensor  has a valid claim  against the Company and that it
     actually  overpaid the licensor.  The Company has not received a demand for
     payment from the licensor.

     Another  licensor  has filed a claim that the  Company  did not  purchase a
     minimum  amount of  software  under a licensing  agreement.  The balance of
     software purchases due under the agreement is approximately  $40,000. If an
     agreement is not reached  between the parties,  the licensor has obtained a
     $33,000  judgement  against the Company.  The Company  believes that if the
     licensor  can  provide  the  appropriate   software,  it  will  make  those
     purchases.

     The Company is in a dispute with a former customer.  The customer  returned
     merchandise on a $180,000 order  claiming all were  defective.  The Company
     claims  that  the  customer  returned  merchandise  that  it  alleged  were
     defective.  The Company offered to replace any defective units. The Company
     believes  it has some  defenses  under the  uniform  commercial  code.  The
     customer has yet to specifically  identify  defective units.  This case has
     been pending for two years and is scheduled for trial in October 1999.  The
     Company is attempting to seek arbitration on this matter. Due to the status
     of the  case,  and the  fact  that  the  customer  has  not yet  identified
     defective  merchandise  that it believes was  defective,  no provision  for
     potential loss has been made in the accompanying financial statements.

                                       41
<PAGE>
     The Company is in dispute with a provider of certain  technology  regarding
     the payment of royalties. The Company has asserted that royalties were paid
     as  required  under  the  agreement  and that the  provider  made  material
     misrepresentations  under the  royalty  agreement.  The Company has filed a
     counterclaim. The case is set for mandatory arbitration. Management intends
     to vigorously  defend its position in this matter.  The Company has accrued
     $113,069 relative to this matter which represents its originally calculated
     royalty due to the provider.

14.  GEOGRAPHIC INFORMATION

     The Company's  revenue was generated  from sales in two primary  geographic
     regions, the United States and Europe. There were no material operations in
     the Company's Asian  subsidiary.  The European  operations are based out of
     the Company's wholly owned subsidiary in the U.K. The Company  considers it
     products to be fall within one product line.

     The  following  table  outlines  the  breakdown  of sales  to  unaffiliated
     customers domestically and internationally:

     NET REVENUES                            1999       %        1998       %
                                          -----------   --    -----------   --
       United States                      $ 2,033,179   60%   $ 2,391,142   51%
       Europe                               1,372,134   40%     2,342,416   49%
                                          -----------         -----------
         Total                            $ 3,405,313         $ 4,733,558
                                          ===========         ===========
     NET LOSS BEFORE INCOME TAXES

       United States                      $(2,170,580)  66%   $  (901,175)  43%
       Europe                              (1,085,365)  34%    (1,184,581)  57%
                                          -----------         -----------
                                          $(3,255,945)        $(2,085,756)
                                          ===========         ===========
     ASSETS

       United States                      $ 1,447,353   53%   $ 3,152,827   68%
       Europe                               1,280,739   47%     1,468,987   32%
                                          -----------         -----------
                                          $ 2,728,092         $ 4,621,814
                                          ===========         ===========

     The Company  completed the winding down of its subsidiary in Belgium in the
     year ended April 30, 1999. The operating results of Europe include a charge
     of   approximately   $243,000,   including  a  charge  for  the  cumulative
     translation  adjustment  of $51,000,  related to the closing of the Belgium
     operations.

     The U.S.  entity had sales to the U.K.  subsidiary of $ 787,000 in the year
     ended April 30, 1999, which were eliminated in consolidation.

                                       42